Questions owners actually ask
Why does the same business get three completely different offers?
Same statements, same revenue, wildly different numbers. It is not random, and understanding why tells you which offer to take.
Because funders are not competing on the same thing. They have different costs of capital, different appetites, different specialities and different ideas about what your industry does in a downturn. Your file has not changed. The lens has.
What actually drives the spread
- Cost of capital. A funder lending its own balance sheet prices differently from one lending a credit facility with covenants. This alone can move a factor rate meaningfully.
- Industry appetite. A funder with a good book in trucking will price a trucking file aggressively. One that has been burned in trucking will price it to lose.
- Position. First position on your receivables is worth far more than second. Offers change sharply based on where an existing UCC filing puts them.
- Product. A 1.35 factor and a 14% APR line of credit are not comparable numbers. See how factor rates convert before comparing anything.
- Who you reached. A file that went to twenty desks reads as distressed and gets priced accordingly.
How to compare offers properly
Put every offer into the same four numbers. Not the ones on the term sheet: these.
- Total dollars back. Everything, including fees, origination and anything deducted from the funded amount.
- Net cash you actually receive. After origination or processing is deducted. This is frequently less than the headline amount.
- Payment amount and frequency. Daily, weekly or monthly, in dollars, on an average week and on your worst week.
- Expected term in months. With the total, this gives you an annualised cost you can compare across products.
A $50,000 advance at 1.30 over six months costs far more per year than a $50,000 advance at 1.40 over eighteen. The headline factor says the opposite. This is exactly the confusion the pricing relies on.
The offer that is usually wrong
The biggest one. Funders size against deposits, and the largest offer on the table is often the one that stretches the debit into the part of your cash flow you needed for payroll. The right amount is the one the business can service in a bad month, not the maximum somebody will approve.
The second usually-wrong answer is the fastest one, when speed was not actually the constraint.
What to do with the spread
Take the best structure to the funder you would rather work with and ask them to match it. This works more often than people expect, particularly with a funder that already has your paper and wants to keep the relationship.
Questions owners ask
Is the lowest factor rate always the best offer?
No. A low factor on a short term with a heavy daily debit can cost more per year and hurt more per week than a higher factor over a longer term.
Should I take the biggest offer?
Rarely. Take the amount that does the job and that you can service in a slow month.
Can I use one offer to negotiate another?
Yes, and you should. Bring the written term sheet. Funders match structure more readily than they cut price.
Related
- Will applying hurt my credit?
- What is a factor rate?
- What lenders see in your bank statements
- Funding with an existing MCA
- Why was I declined?
- How much can I borrow?
- How fast can I get funded?
- What documents do I need?
- What credit score do I need?
- Can they take my house?
- What is a UCC filing?
- Can I pay off an MCA early?
- What if I miss a payment?
- Under a year in business?
- What is a holdback rate?
- Tax lien or judgment?
- Is my industry restricted?
- What does a broker charge?
- Do I need collateral?
- Will they call my customers?
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General information, not financial or legal advice. Terms vary by lender and business.