How it works
A funding partner advances a lump sum to your business. In return you agree to repay a fixed total, which is the advance multiplied by a factor rate. You know that total before you sign.
Repayment comes out of your business bank account in equal payments, every business day or every week, until the total is repaid. Some advances are repaid as a share of card sales instead, so the payment moves with your sales.
What it costs
The cost is the total payback minus the advance, shown in dollars. There is no annual rate to compare it with. If there is an origination fee, it comes out of the advance before it reaches your account, so the amount deposited is lower than the amount advanced. Ask for the net deposit in writing.
Who it can suit
Established businesses with steady deposits that need funds faster than a bank can arrange, for something with a clear job such as equipment, stock or a busy season.
Who it may not suit
Businesses whose income is lumpy or arrives long after the work, and businesses already paying other advances. A fixed payment keeps coming on slow days.
What to check before you sign
The total payback in dollars, the payment and how often it is taken, the net amount deposited, any fees, whether the owner signs a personal guarantee, and what happens if sales fall. If a bank can fund you in time, it usually costs less, and we will say so.