Guide
A plain-English guide to funding your business
On this page
If you have ever applied for business capital and come away confused, it is usually not because you missed something. It is because the market quotes its prices in at least three incompatible units. A bank quotes an annual percentage rate. A merchant cash advance quotes a factor rate. A credit card quotes an intro period followed by a revert rate. None of those numbers can be compared directly, which is exactly why the expensive options rarely look expensive at first glance.
1. The five main ways to fund a business
Nearly everything on the market is a variation of these five. The figures below are published market ranges for each funding type, not offers from any one company.
| Option | Typical max amount | Typical cost of capital | Time to funds | Best suited to |
|---|---|---|---|---|
| Funding marketplace | $250,000 | Varies; 0% intro tiers exist | 24–72 hrs | Speed with a range of options |
| SBA loan | $5,000,000 | Prime + 2.75–4.75% | 30–90 days | Large amounts, patient timelines |
| Bank term loan | Varies by bank | ~7–12% APR | 2–4 weeks | Established, strong credit |
| Merchant cash advance | ~$250,000 | 1.2–1.4 factor rate | 1–2 days | Urgent gaps, weaker credit |
| Business credit card | Under $50,000 | 0% intro, then ~18–29% APR | 1–2 weeks | Smaller, short-term expenses |
2. How to compare what capital actually costs
An APR expresses cost as a yearly percentage of the money you still owe. Because the balance shrinks as you repay, APR already accounts for time. This is why it is the only figure that lets you compare two offers honestly.
A factor rate does not work that way. It is a flat multiplier applied once to the amount advanced, and it does not change no matter how quickly you repay.
Worked example A $50,000 advance at a 1.35 factor rate means you repay $67,500 — a fixed $17,500 cost. That is 35% of the amount advanced. But if the repayment term is nine months rather than twelve, you are paying 35% for less than a year's use of the money, on a balance that is falling the whole time. Expressed as an APR, the same deal typically lands far higher than 35%. Published ranges for this product run roughly 40–150% APR.
The practical rule: before comparing any two offers, convert both to an APR, and make sure that APR includes origination and administrative fees. An offer with a lower headline rate and a 3% origination fee can easily cost more than one with a higher rate and no fee.
3. Soft pull vs hard pull
A soft pull (soft inquiry) checks your credit without affecting your score. It is what happens when you check your own report, or when a provider pre-qualifies you. You can do it repeatedly with no consequence.
A hard pull (hard inquiry) is recorded on your report and can lower your score slightly. Several in a short window can compound, which matters if you are shopping around.
This is worth caring about, because some providers run a hard inquiry before showing you a single number. That is a real cost imposed on someone who is only comparing. Ask which type is being run before you submit anything.
4. What underwriters actually look at
Requirements vary, but nearly every provider weighs the same four things:
- Time in businessHow long you have been trading. Many products want at least six months; bank and SBA products typically want two years or more.
- RevenueUsually monthly or annual deposits, verified from bank statements. Revenue-based products lean on this more heavily than on credit.
- Credit profileOften the owner's personal credit as well as the business's, particularly for lower-cost and 0% products.
- IndustrySome sectors are restricted or priced differently based on the provider's own loss history, regardless of how your business is performing.
Strength in one area can offset weakness in another. A business with strong, steady deposits may qualify on revenue despite mediocre credit — though usually at a higher cost.
5. Glossary
- APR (Annual Percentage Rate)
- The yearly cost of borrowing expressed as a percentage of the outstanding balance, including most fees. The only figure that lets you compare offers directly.
- Factor rate
- A flat multiplier applied to the advanced amount, common in merchant cash advances. A 1.3 factor on $50,000 means repaying $65,000. It does not fall if you repay early.
- Origination fee
- A one-off charge for issuing the funding, usually a percentage of the amount, often deducted before you receive the money.
- Personal guarantee
- A commitment making you personally liable for the debt if the business cannot repay it. Common in small business lending, including many SBA loans.
- UCC lien
- A public filing giving a provider a claim over business assets. It can affect your ability to obtain further funding while it is in place.
- Prime rate
- A benchmark rate that moves with the federal funds rate. Variable-rate products are frequently quoted as "Prime plus" a margin.
- Soft pull / hard pull
- A credit check that does not affect your score, versus one that is recorded and may reduce it slightly.
- Working capital
- Money used for day-to-day operating costs — payroll, stock, rent — rather than for buying long-term assets.
Where to start
If you want to see what you qualify for without committing to anything, start with a provider that pre-qualifies on a soft pull. You will learn where you stand without marking your credit file, and you can take that information to any other provider you want to compare against.
Figures on this page describe each funding type generally, based on published market ranges. They are not offers, and they are not specific to any one company. Your own rate, amount and terms depend entirely on the provider's underwriting and your qualifications. Nothing here is financial advice.