Larkridge Funding Group, a small-business funding broker in Decatur, Illinois, gives Macon County owners a checklist of questions to ask a lending partner before signing: total cost, APR or factor rate, payment schedule, prepayment, collateral, UCC liens, personal guarantees, covenants and what happens if a payment is late. Lending partners make credit decisions and set rates and terms.
Why the owner has to ask
In 2023, 45.6 percent of Macon County's 2,241 employer establishments had fewer than five employees (U.S. Census Bureau, County Business Patterns 2023), and in the office ZIP code, 62523, the share was 42.1 percent (U.S. Census Bureau, ZIP Code Business Patterns 2023). At that size, the owner usually reads the contract alone. A partner will answer straightforward questions, but it will not volunteer every comparison you might want to make.
Three questions for yourself first
- What exactly will this money pay for? If the answer is vague, the offer will be hard to judge.
- Where will each payment come from? Name the revenue, not the hope.
- What does my slowest month look like with this payment in it? If the answer is an overdraft, the structure or the amount is wrong.
Owners who can answer these three in a sentence each tend to read offers faster and more calmly, because they already know what a workable offer looks like for their business.
About the cost
- What is the total amount I will pay back, including every fee? This is the single most useful number.
- How much will I actually receive? Fees deducted at closing reduce it.
- Is the cost quoted as an APR, an interest rate or a factor rate? They are not interchangeable. A factor rate applies to a merchant cash advance, which is not a loan; see the merchant cash advance page.
- Is the rate fixed or variable, and if variable, what moves it?
About the schedule
- How often are payments taken: monthly, weekly or daily?
- Are they drawn automatically from my account?
- Can I pay it off early, and what would that save or cost? The term loan page explains prepayment and balloons.
- Does a large final balloon payment sit at the end of the term?
About what is at stake
- What collateral secures this, and will a UCC lien be filed? Ask whether the lien covers only the financed item or all business assets.
- Am I signing a personal guarantee, and what does it cover?
- What covenants or reporting does the agreement require?
- What counts as a default, and what happens after a late payment?
For a line of credit specifically
A business line of credit raises its own questions, and its disadvantages are easy to overlook: fees that apply even when nothing is drawn, variable rates, a draw period that ends, and the partner's right to review and reduce the line. Ask how long the draw period is, what happens at the end of it and what fees apply to an unused limit.
About the partner and the broker
- Who services the loan after signing, and who do I call with a problem?
- For an advance: how does reconciliation work if sales fall? Ask who starts it, how often it can happen and what records are needed.
- Can I take another loan or advance while this one is outstanding?
- What does the broker receive, and from whom? Larkridge Funding Group's role is set out on the disclosures page.
A note on taking your time
A legitimate partner will give you the agreement to read before you sign. Pressure to sign the same day, an agreement that never shows the total you will pay back, or a request for money before any offer exists are all reasons to slow down. How a request works explains where these questions fit in the process, and more articles are on the Larkridge blog.
By Larkridge Funding Group · Updated