5 Questions to Ask Any Funder Before You Sign

A working-capital advance can be a clean, fair transaction, but the difference between a good deal and a painful one often lives in details that aren't front and center on the term sheet. Before you sign anything, get clear answers to these five questions.

1. What is the total cost of capital, in dollars?

Don't accept the factor rate alone. Ask for the actual dollar figure: advance amount, purchased amount, and the difference between them. That difference is what you're paying, and it should be stated plainly.

2. Is there a reconciliation provision?

Reconciliation is your right to adjust remittances when sales slow, so a fixed daily debit doesn't outrun your actual revenue. If it's not in the agreement, ask why. A funder confident in its product will offer it.

3. What happens if I want to pay early?

Because the obligation is a fixed purchased amount, early payoff doesn't automatically save you money. Ask whether there's an early-delivery or prepayment discount, and get the terms in writing.

4. Are there confession-of-judgment or stacking clauses?

Understand what you're agreeing to in a default scenario, and whether the agreement restricts taking additional advances. Both clauses are common; both deserve a careful read.

5. Who am I actually working with?

Is the company underwriting and funding the deal with its own capital, or brokering it to someone else? With a direct lender, the entity making the decision is the one writing the check: usually faster, and without a marked-up rate sitting between you and the funder.