In This Guide
Table of Contents
Why We Built This
Why This Guide Exists
Most business owners review loan offers the way they skim software terms of service — they jump to the monthly payment and ignore everything else. That one habit costs small businesses billions of dollars a year in unnecessary interest and fees.
This guide exists because loan offers are deliberately designed to be hard to compare. One lender quotes a factor rate. Another quotes APR. A third quotes “cost of capital.” Some bury origination fees in the fine print. By the end of this guide, you'll know exactly what every number on a loan offer means — and which ones are designed to hide the true cost.
“The industry counts on business owners not understanding the paperwork. This guide levels the playing field. If your lender won't explain every number on the offer, you're probably working with the wrong lender.”
— Bobby Friel, Basecamp Funding - Founder
Real Scenario
Case Study: The Houston Plumber, Two Offers
A Houston plumbing company owner needed capital for a new service truck and equipment. He received two offers the same week.
Offer A quoted a factor rate with daily payments. Offer B quoted an APR with monthly payments.
At first glance, the factor rate number sounded lower than the APR number. The plumber almost signed with Offer A — until he ran both through a loan cost calculator that converted everything to APR equivalent.
The “cheaper sounding” offer was actually significantly more expensive once the math was normalized. The factor rate was hiding the true cost.
The lesson: You cannot compare loan offers by the headline number. You have to convert everything to a common metric — typically APR — before you make the call.
Borrowers who sign the wrong offer rarely realize it for 6-12 months — until they're deep into repayments and start wondering why the monthly numbers don't feel right. By then, the cost of switching is a prepayment penalty, lost time, and a refinance that might not even be available. The time to catch this is BEFORE you sign — which is exactly where you are right now.
The Core Difference
Factor Rate vs APR — Why It Matters
A factor rate is a simple multiplier applied to your loan amount. It does NOT account for how long you hold the money. When you borrow a set amount at a factor rate, your total repayment is fixed regardless of how fast you pay it off.
APR (Annual Percentage Rate) accounts for compounding, fees, and the actual time you hold the money. The same loan paid back over 3 years vs 18 months results in very different total costs and monthly payments — even at identical underlying rates.
The only way to compare loan offers fairly is to convert everything to APR. Factor rates hide time. APR captures it.
If a lender won't show you the APR equivalent, that's your first red flag. Reputable lenders always disclose APR on request.
Note: Rate examples used in this guide are illustrative for educational purposes only. Your actual rate depends on your credit, revenue, time in business, and lender. See what 70+ lenders will offer you in 60 seconds — soft-pull pre-qual.
Use our loan cost calculator to convert factor rates to APR and see the true cost side by side.
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See What You Pre-Qualify For →Critical Knowledge
The 8 Numbers You Must Check in Every Loan Offer
Before you sign anything, find these numbers on your offer sheet. If any are missing, ask. If the lender won't answer, walk away.
💰 Total Repayment Amount
Why it matters: The single most important number — how much you'll actually pay back in total.
What to ask: "What is the total of all payments over the life of the loan?"
📊 APR (True Annual Cost)
Why it matters: The only way to compare offers fairly. Factor rates, fees, and terms all bake into APR.
What to ask: Request the APR equivalent on every offer regardless of how the lender quotes it.
📅 Payment Frequency & Amount
Why it matters: Daily payments drain cash flow faster than monthly. Know what hits your account and when.
What to look for: Monthly is best for cash flow. Weekly is manageable. Daily ACH should carry a meaningfully lower total cost to justify it.
⏳ Term Length
Why it matters: Shorter terms mean higher payments. Longer terms mean more total interest.
What to look for: Match the term to the asset's useful life. Don't take a 6-month term for a 5-year truck.
📝 Origination / Closing Fees
Why it matters: These are deducted upfront. A 3% fee on a $100K loan means you only receive $97K.
What to ask: Is the fee deducted from proceeds or added to the balance?
🔓 Prepayment Terms
Why it matters: Some loans penalize you for paying early — which defeats the purpose of getting ahead.
What to look for: Best is no prepayment penalty. Acceptable is a declining penalty. Avoid fixed penalties.
✍️ Personal Guarantee
Why it matters: A PG means your personal assets are on the line if the business can't pay.
What to look for: SBA loans require a PG. Some online lenders don't. Know what you're pledging before you sign. Learn about SBA loans →
🎯 Don't Wait for Perfect Terms
Why it matters: Business opportunities don't wait. Many lenders offer a term review at 6–12 months — your rate and terms can improve once you've built a payment history.
What to look for: Ask your lender if they offer a rate review or refinance option after 6–12 months of on-time payments. Get funded now, optimize later.
Working with Basecamp? Our funding advisors review every offer with you line by line. We translate the numbers, flag anything that doesn't look right, and make sure you're comparing apples to apples before you sign anything.
Not Sure How Your Current Offer Stacks Up?
Compare your current offer against what 70+ lenders would quote — in 60 seconds, soft-pull pre-qual.
See What You Pre-Qualify For →At a Glance
What a $100K Loan Looks Like Across Products
The same $100,000 loan structures dramatically differently across loan products. Here's how to think about the tradeoffs.
| Product | Term | Payment Structure | Typical Use | Best For |
|---|---|---|---|---|
| SBA 7(a) | 10-25 years | Monthly, fixed or variable | Expansion, acquisition, refinancing | Lowest cost of capital |
| Bank Term Loan | 3-10 years | Monthly, fixed | Large purchases, expansion | Established businesses |
| Online Term Loan | 6-36 months | Weekly or daily | Working capital, bridge financing | Speed + flexibility |
| Business LOC | Revolving | Monthly, interest-only draws | Cash flow gaps, seasonal needs | Recurring needs |
| Revenue-Based | 3-18 months | Daily % of revenue | Fast capital, variable revenue | High-revenue businesses |
| MCA | 3-18 months | Daily ACH, fixed factor | Emergency, quick-turn needs | Speed above all else |
Rates and terms depend on credit, revenue, time in business, and lender. Every business is unique — see what 70+ lenders will offer you in 60 seconds. Soft-pull pre-qual.
Key Takeaway: The cheapest monthly payment isn't always the cheapest loan. SBA loans have the longest terms and most favorable structures — but take 60-90 days to fund. If you need money this week, an online term loan or line of credit gets you funded in days. The right loan depends on how fast you need capital and how long you need it.
Avoid These Pitfalls
The Red Flags Checklist
Most borrowers don't spot red flags because they don't know what red flags look like. They see words on an offer sheet and assume those words are normal because every lender uses them. They're not normal — they're traps that reputable lenders refuse to include.
If you see any of these in a loan offer, slow down. Each one has cost real business owners thousands of dollars.
🚩 No APR Disclosure
Why it matters: If a lender only quotes a factor rate and refuses to show you the APR equivalent, they don't want you to see the real cost.
What to do: Legitimate lenders will always provide APR on request. If they won't, walk away.
🚩 Prepayment Penalties
Why it matters: Some lenders charge you extra for paying early. With factor-rate products, you owe the full amount regardless.
What to do: If there's no benefit to paying early, you need to know that upfront before you sign.
🚩 Confession of Judgment
Why it matters: A legal clause that lets the lender seize your assets without going to court. Banned in some states for good reason.
What to do: Never sign a loan that includes a confession of judgment clause. No exceptions.
🚩 Daily ACH Without Lower Cost
Why it matters: Daily payments aren't inherently bad — but they should come with a lower total cost because the lender gets their money back faster.
What to look for: If daily payments don't reduce your total cost, the lender is just maximizing their return at your expense.
🚩 Stacking Provisions
Why it matters: Some lenders encourage you to take a second loan on top of your first. This is called stacking, and it can trap you in a cycle of debt.
What to do: You're borrowing to repay borrowing. Avoid lenders who encourage stacking without a clear payoff strategy.
🚩 Hidden Fees
Why it matters: Origination fees, processing fees, documentation fees, UCC filing fees — they add up fast.
What to do: If fees aren't clearly listed in the offer sheet, ask for a complete fee breakdown in writing before signing.
🚩 No Written Terms
Why it matters: If a lender won't put the terms in writing before you sign, that's not a negotiation — it's a trap.
What to do: Verbal promises are worthless. Every number, fee, and condition should be on paper.
🚩 Pressure to Sign Quickly
Why it matters: "This rate expires today" and "I have another borrower waiting" are high-pressure tactics, not real deadlines.
What to do: Legitimate lenders give you time to review terms and ask questions. If they pressure you, walk away.
Bobby's Take
“If you see two or more of these red flags in a single offer, that's not a lender — that's a predator. Walk away and reach out. We'll find you something better.”
— Bobby Friel, Basecamp Funding - Founder
Ready to See What You Qualify For?
One application. 70+ lenders competing. 60 seconds. Soft-pull pre-qual.
See What You Pre-Qualify For →Put It Into Practice
The Side-by-Side Comparison Worksheet
Use this worksheet to compare two offers side by side. Fill in the numbers from each offer sheet and the better offer will be obvious.
| Item | Offer A | Offer B |
|---|---|---|
| Lender Name | — | — |
| Product Type | — | — |
| Loan Amount | — | — |
| Factor Rate | — | — |
| APR | — | — |
| Term | — | — |
| Payment Frequency | — | — |
| Payment Amount | — | — |
| Total Repayment | — | — |
| Origination Fee | — | — |
| Prepayment Penalty | — | — |
| Personal Guarantee | — | — |
| Red Flags Noted | — | — |
Pro Tip: The “Cost Per Dollar Borrowed” is the ultimate tiebreaker. Divide the total cost of capital by the loan amount. Lower is better, regardless of what the factor rate or APR number looks like on the offer sheet.
Keep Going
Continue Learning
Keep going — these three guides pair together to give you the full funding playbook.
📘 Business Owner's Guide to Funding
All 10 loan products compared side by side with real scenarios.
✅ Pre-Application Checklist
Documents, timelines, and the 5 mistakes that get applications declined.
🏗️ Contractor's Funding Playbook
Equipment financing, bonding, and cash flow strategies for contractors.
Related Tools
Put the Guide Into Practice
Common Questions
Frequently Asked Questions
About the Author
About Bobby Friel
Bobby Friel is the founder of Basecamp Funding, a business loan marketplace connecting business owners with 70+ lending partners across all 50 states. With over 20 years of experience in banking and mortgage lending, Bobby has seen thousands of loan offers and knows exactly which numbers lenders count on you ignoring. Based in Colorado's Vail Valley, Bobby works with businesses from startups to $10M+ commercial acquisitions.
If your next loan offer was evaluated by someone who has reviewed thousands of offers and knows exactly what each clause costs you — what would that be worth to you?
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