Questions to Ask a Business Lender Before Signing
Before signing a business loan agreement, owners must ask about the total cost of capital including origination fees, whether there are early repayment penalties, and the specific frequency of repayments. Crucial red flags to identify include Confession of Judgment (COJ) clauses and lack of transparency regarding the "cents on the dollar" cost. Asking these targeted questions ensures you understand the true impact on your cash flow before committing to a contract.
Key takeaways
- Always ask for the 'Total Payback Amount' to see the true cost of debt beyond the interest rate.
- Verify if the lender requires a Confession of Judgment, which can lead to immediate asset seizure without a trial.
- Inquire about 'Double Dipping' fees if you plan to refinance or take additional draws in the future.
- Confirm whether the repayment schedule is daily, weekly, or monthly to avoid cash flow bottlenecks.
- Ask if there is a 'Prepayment Benefit'-many short-term loans require you to pay the full interest even if you finish early.
- Check which credit bureaus the lender reports to so you can leverage the loan to build your business credit score.
Who this is for
This guide is essential for small business owners who have received a funding offer and want to ensure they aren't falling into a debt trap. Whether you are a first-time borrower or a seasonal pro, the language in modern commercial contracts can be intentionally opaque regarding fees and legal waivers.
If you are comparing high-speed options like MCAs with traditional term loans, these questions will help you normalize the costs. We designed this checklist to level the playing field between you and the lender's underwriting department, ensuring 98% client satisfaction through total transparency.
What you need to qualify
While every lender has unique criteria, these are the general benchmarks you should discuss during your screening process:
| Requirement | Typical standard |
|---|---|
| Minimum FICO Score | 550 - 680+ (Varies by product) |
| Monthly Revenue | $10,000+ per month minimum |
| Time in Business | 6 months to 2 years minimum |
| Maximum Loan Amount | Up to $5,000,000 (Based on revenue) |
| Repayment Frequency | Daily, Weekly, or Monthly ACH |
| Required Interest Type | Simple Interest or Factor Rate |
| Documentation Needed | 4 months bank statements + Tax returns |
| Origination Fees | 0% to 5% of total loan amount |
Best funding options
Depending on your transparency needs and business goals, consider these vetted funding structures:
Term Loans
Clear monthly payments and fixed terms from 1 to 5 years for established businesses.
Business Lines of Credit
Flexible access to cash with interest paid only on the amount you actually draw.
Merchant Cash Advance
Fast funding based on future sales, ideal when speed is more critical than APR.
SBA Loans
Government-backed loans with the lowest rates and longest terms, but rigorous vetting.
When this makes sense
- When you have multiple offers and need to compare apples-to-apples total costs.
- If you are working with a new or non-bank lender for the first time.
- When your business has seasonal revenue and needs flexible repayment terms.
- If you plan on paying the debt back early to save on interest expenses.
When to be careful
- If a lender refuses to provide a written offer or 'Truth in Lending' disclosure.
- When the daily payment amount exceeds 20% of your average daily bank balance.
- If the agreement requires a Confession of Judgment (COJ) clause.
- When a lender pressures you to sign immediately to 'lock in' a rate that seems too good to be true.
Get a Transparent Loan Comparison Today
Don't navigate the fine print alone. Our advisors help you compare offers from 100+ lenders to ensure you're getting fair terms and no hidden traps.
Frequently asked
Common questions
Ready to Join the Hive?
Apply now via BeeLine™ and get your funding decision in minutes. Complete in less than 60 seconds.