20 Things Every Business Owner Should Know Before Talking to a Lender
20 Things Every Business Owner Should Know Before Talking to a Lender
You wouldn't walk into a car dealership without knowing what kind of car you need. But thousands of business owners do exactly that with funding — they walk in cold, sign whatever looks reasonable, and end up with a structure that doesn't fit their business.
After 15+ years in the merchant cash advance and business funding industry, I've seen the same mistakes cost business owners thousands of dollars. Here's what you need to know before you pick up the phone.
1. Revenue Matters More Than Credit Score
Most traditional lenders lead with your credit score. In alternative business funding, your monthly revenue is the primary driver. Lenders want to see consistent cash flow — typically $10,000+ per month — because that's what determines your ability to repay.
"[Business owners] think their credit score is the be-all and end-all. In reality, a business doing $50K a month with a 580 credit score is more fundable than a business doing $8K a month with a 750." — Richard McKellar, Founder of MyCommercialFunding
2. Factor Rate vs. APR — Know the Difference
This is the single most confusing part of MCA funding. A factor rate of 1.2 means you repay 1.2x the amount you borrow. On a $50,000 advance, you'd repay $60,000. But that's not the same as a 20% APR — the actual annualized rate depends on your repayment term.
| Term Length | $50K at 1.2 Factor | Effective APR |
|---|---|---|
| 6 months | $60,000 | ~40% |
| 12 months | $60,000 | ~20% |
| 18 months | $60,000 | ~13% |
Always ask: "What's the total payback amount and how long is the term?"
3. Same-Day Funding Is Real — But Preparation Is Required
Legitimate lenders can fund within 24-48 hours. But that clock starts after you submit complete documentation. If you show up with half your bank statements missing, your "same-day" funding turns into next week.
4. Have These Documents Ready
Before any funding conversation, have these within arm's reach:
- Last 3-4 months of bank statements (all pages)
- Government-issued ID
- Business EIN/SSN
- Voided business check
- Basic application (name, address, time in business, monthly revenue)
Having these ready signals that you're serious and speeds up the entire process.
5. Don't Apply to 10 Lenders at Once
Every application creates a hard inquiry or leaves a footprint. Applying to multiple lenders in a short window makes you look desperate and can actually hurt your terms. Work with a broker who can shop your deal to multiple funders through a single process.
6. "No Fees" Should Mean No Fees
At MyCommercialFunding, we don't charge broker fees, origination fees, or application fees. But not every lender operates this way. Ask directly: "Are there any fees deducted from my funding amount, and are there any fees charged at closing?"
7. Understand the Holdback
In an MCA, the "holdback" is the percentage of daily sales remitted to the lender. A 10% holdback on a business doing $5,000/day means $500/day goes to repayment. Make sure the holdback percentage leaves enough operating capital for your business.
8. Your Industry Matters
Some industries are more fundable than others. Restaurants, construction, retail, and healthcare practices are highly fundable because they have predictable revenue streams. If you're in a niche industry, work with a broker who understands your sector.
9. Time in Business Is a Factor
Most lenders want to see at least 3-6 months in business. Some will work with newer businesses, but terms will be less favorable. If you're just starting out, a smaller initial advance can build a track record for larger future funding.
10. You Can Negotiate
Funding offers aren't always final. If you have competing offers or strong revenue, there's room to negotiate the factor rate, holdback percentage, or advance amount. A good broker advocates for you in this process.
11. Understand Confession of Judgment (COG)
Some MCA contracts include a Confession of Judgment clause, which allows the lender to seize assets without going to court if you default. Ask whether the contract includes a COG and understand what it means before signing.
12. Daily vs. Weekly vs. Monthly Payments
The payment frequency matters for cash flow management. Daily payments can strain businesses with variable revenue. Weekly or monthly structures provide more breathing room. Ask about payment frequency options.
13. What Happens If You Pay Early?
Some lenders charge a prepayment penalty; others don't. If you're planning to pay off early (or if you might refinance), clarify the prepayment terms upfront.
14. UCC Filing — What It Is and Why It Matters
A UCC (Uniform Commercial Code) filing is a public notice that a lender has a security interest in your business assets. Some lenders file one; others don't. Understand whether a UCC will be filed and what it covers.
15. Personal Guarantee Implications
Many business funding agreements require a personal guarantee, meaning you're personally responsible if the business can't repay. Understand the scope of the guarantee before signing.
16. Revenue Trend Matters
Lenders look at your recent revenue trend. A business with declining revenue is riskier than one with stable or growing revenue, even if the absolute numbers are the same. If your revenue has been trending down, explain why (seasonal, one-time expense, etc.).
17. Multiple Advances Are Common
You can have more than one MCA or funding product at a time, but stacking too many can create a cash flow crisis. A good broker will help you assess whether your business can handle additional obligations.
18. Renewals vs. New Funding
Some lenders offer renewals to existing customers at better terms. If you've been paying on time, ask about renewal options before seeking new funding elsewhere.
19. Get Everything in Writing
Verbal promises mean nothing in lending. Every term, rate, fee, and condition should be in the contract. If it's not in writing, it doesn't exist.
20. Work With a Broker You Trust
The funding landscape is complex. A knowledgeable broker saves you time, money, and headaches by matching you with the right lender and negotiating on your behalf.
The difference between a good funding experience and a bad one almost always comes down to preparation. Know what you need, know what you can afford, and work with someone who has your best interest at heart." — Richard McKellar
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Frequently Asked Questions
What credit score do I need for a business loan?
It depends on the product. SBA loans typically require 650-680+. Merchant cash advances focus primarily on revenue and can work with scores as low as 500. Business lines of credit generally want 600+. The best approach is to apply and let the underwriting process determine your eligibility based on your complete financial picture.
How fast can I get funded?
With complete documentation, MCA funding can happen in as little as 24-48 hours. Equipment financing typically takes 3-7 business days. SBA loans take 30-90 days. The fastest path to funding is having your bank statements, ID, and application ready to go.
Should I work with a broker or go directly to lenders?
A broker gives you access to multiple funding sources through a single application, which saves time and reduces the impact on your credit. A good broker also advocates for better terms and helps you understand the options. Going direct limits you to one lender's products and terms.
What documents do I need for a merchant cash advance?
Typically: 3-4 months of business bank statements (all pages), a government-issued ID, your EIN or SSN, and a voided business check. Some lenders may also request a brief application with basic business information. Having these ready upfront can cut your funding timeline in half.
Is a merchant cash advance right for my business?
An MCA is ideal if you need capital quickly, have consistent monthly revenue of $10,000+, and traditional bank financing isn't an option or is too slow. It's particularly strong for businesses with seasonal revenue fluctuations, since repayments scale with your sales. The best way to know is to talk through your specific situation with a funding specialist.