Business Loan Comparison: What to Check Before You Sign an Offer

Two funding offers can arrive on the same desk in the same week and be impossible to compare, because they are quoted in different units. One carries an interest rate. Another carries a factor rate. A third is priced as a discount on an invoice. None of those three numbers means the same thing, and lining them up side by side tells you almost nothing about which is cheapest.

The comparison that always works is total dollars repaid, against the number of days you have the money. Start there, then look at the terms that move the real cost around.

Start with the total, not the rate

Run every offer down to one figure: how much leaves the business before the balance is clear.

A term loan charges interest on a declining balance, so the cost falls as the principal comes down. A factor rate does not work that way. It is applied once, to the original amount, and it does not shrink as you repay. Take $100,000 at a factor rate of 1.25. The total repayment is $125,000, so the fee is $25,000, which reads like 25 percent. These advances are normally collected daily or weekly rather than monthly, and once you account for the fee sitting on the full $100,000 while the balance you actually hold falls the whole way down, the comparable figure lands near 46 percent APR. Monthly collection would put it closer to 43 percent. A 25 percent fee and a 25 percent interest rate are not the same price.

Comparing within a category is manageable. Comparing across categories is where owners get caught, since a line of credit, a term loan and an advance against future sales use three different pricing conventions. It helps to have the categories laid out in one place before two specific offers land on the desk. FundBetter’s comparison of the eight main funding types is one such summary, and the marketplace model behind it exists because most owners are choosing between structures rather than between two versions of the same product.

Where expectations and reality come apart

There is decent evidence that this catches people out.

The Federal Reserve Banks publish an annual Small Business Credit Survey, and the 2026 report on employer firms, drawn from the 2025 survey of 6,525 firms, asked borrowers whether their costs landed where they expected. Among those who borrowed from online lenders, 60 percent said the actual borrowing cost came in higher than expected. Four percent said it came in lower. Borrowers at small and large banks reported the same surprise far less often, at 37 percent and 32 percent.

The survey also found that high interest rates and unfavorable repayment terms were the most common problems reported at online lenders, and that applicants at banks and credit unions were more satisfied than those at online lenders and finance companies. Worth noting the sample: the survey is a nationwide convenience sample rather than a random one, so treat the figures as a strong signal rather than a precise national measurement.

The pattern still matters, because it points at something specific. The share of applicants going to online fintech lenders has grown from 17 percent in the 2020 survey to 29 percent in the 2025 survey. More owners are borrowing through a channel where the pricing convention is least familiar.

Four things the headline number hides

Payment frequency. A weekly or daily debit and a monthly payment can carry the same stated cost and land very differently on a bank account. Ask for the payment amount and the frequency before you ask about the rate.

Prepayment treatment. On an interest-bearing loan, paying early usually saves interest. On a factor-rate advance, the fee is typically fixed at the outset, so paying early saves nothing unless the agreement specifically discounts it. Ask the question in writing.

Fees outside the rate. Origination, closing, wire or ACH charges, servicing, monthly minimums and lockbox fees all sit outside the quoted rate and inside the real cost. Ask for the all-in figure on a sample draw rather than the headline number.

What repayment is tied to. A fixed payment is predictable and unforgiving in a slow month. A payment tied to a share of revenue flexes with sales, which protects cash flow when trade slows. Where that arrangement is priced with a factor rate, the total owed is fixed on day one and does not move, so a slow stretch lengthens the term without adding to the bill, while a strong stretch clears the balance sooner and pushes the effective annual cost up. Neither structure is better in the abstract. They suit different revenue patterns.

Match the structure to the need

A recurring, unpredictable need points toward revolving credit, where you pay only for what you draw. A single defined purchase points toward a term loan sized to that purchase. A gap created by slow-paying customers points toward financing the receivable rather than borrowing against the business as a whole.

The expensive mistakes tend to be structural rather than a few points of rate. A long-term asset funded with short-term money, or a seasonal gap funded with a ten-year commitment, will cost more than picking the second-cheapest offer in the right category.

Frequently asked questions

How do I compare a factor rate with an interest rate?

Convert both to total dollars repaid over the same period, then compare that against how long you hold the money. A factor rate applies once to the original amount and does not fall as you repay, so a 1.25 factor is materially more expensive than a 25 percent interest rate over the same term.

Is a lower rate always the cheaper offer?

No. A lower rate over a longer term can cost more in total dollars, and a higher rate paid off quickly can cost less. Fees sitting outside the quoted rate can also close the gap between two offers or reverse it entirely.

What should I ask a lender before signing?

Total repayment in dollars, the payment amount and frequency, every fee outside the rate, what happens if you repay early, whether a personal guarantee is required, and what the lender does if a payment is missed. Get the answers in writing rather than on a call.

Does applying to several lenders hurt my credit?

It depends on the inquiry. Many lenders and marketplaces check options with a soft inquiry that leaves no mark, and move to a hard pull only when you proceed with a specific offer. Confirm which applies before you submit anything.

How long should a funding decision take?

Long enough to get the total cost of each offer in writing and compare them properly. Pressure to sign the same day is worth treating as information about the offer.

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