How to compare business financing offers
Two offers can look similar and cost very differently. The way to compare them is to reduce each one to the same small set of numbers — and ignore everything else until those numbers are clear.
Start with the cash you actually receive
The headline amount is not always the amount that reaches your bank account. Origination, closing, or processing fees may be deducted before funding. The number that matters first is net proceeds: the amount received minus any fees taken out upfront.
A hypothetical example, purely to show the arithmetic: an offer of $50,000 with $2,500 in deducted fees is really a $47,500 offer. Compare net proceeds to what you actually need — a larger headline number that nets less is not more money. These figures are illustrations of the math, not market data or typical terms.
Normalize every offer to total repayment
Providers express cost differently: an interest rate, a factor rate, or a fixed total repayment. These are not directly comparable as quoted. The common denominator is total repayment — the full amount you will pay over the life of the financing, including all fees.
From there, financing cost is simple arithmetic: total repayment minus net proceeds. And cost per dollar received — financing cost divided by net proceeds — lets you compare offers of different sizes on equal footing. In a purely hypothetical comparison, a cost of $0.25 per dollar received beats $0.40 per dollar received, regardless of how either was marketed. Those figures illustrate the comparison method; they are not typical or expected terms.
Check the payment against your cash flow
A cheaper offer can still be the wrong offer if the payment does not fit. Compute the payment burden: the periodic payment converted to a monthly equivalent, as a percentage of the cash your business has available each month before the new payment.
Payment frequency matters here. Daily or weekly payments behave very differently from monthly ones inside a real business's cash cycle — a modest-looking daily payment can still strain a business whose revenue arrives in lumps.
Read what is not a number
- Prepayment: does paying early reduce your cost, or is the total fixed?
- Security: collateral, a personal guarantee, or a UCC filing?
- Default terms: what happens after a missed payment?
- Renewal behavior: is the provider's business model built around renewing you into more financing?
What this method cannot tell you
Comparing offers arithmetically tells you what each offer costs and how it would sit on your cash flow. It cannot tell you what other offers you might receive, whether a provider's stated terms will survive underwriting, or whether borrowing is the right move at all. Sometimes the honest result of a comparison is to take none of the offers.