How to evaluate the cost of business funding

Funding is easy to compare badly. A headline number, a weekly repayment or a term on its own tells you very little. What matters is what the money costs you in total, in dollars, and what the job it pays for is expected to return.

Start with the total cost in dollars

Before anything else, ask what you will repay in total and how much of that is cost rather than principal. A dollar figure is something you can hold up against the job. It also cuts through the different ways providers express their pricing, which can make two offers hard to compare side by side.

Check what sits outside the headline as well. Ask whether there are establishment, account-keeping or other fees, and whether they are included in the figure you have been given. The number you want is everything you will pay over the life of the facility.

How flat weekly pricing works

We price on a flat weekly basis. The cost is worked out on the amount you borrow, for each week of the term, and spread evenly across your weekly repayments. Terms are 13 or 26 weeks.

As a worked example, $50,000 over 26 weeks at 0.8% per week costs $10,400.00 in total, about $2,323.08 a week. Those weekly repayments cover principal and cost together, so over the 26 weeks you repay $60,400.00.

Because the cost is fixed at the start, you know the full figure before you sign, and your repayments are fixed at the start. The trade-off is that the cost is calculated on the amount you borrowed rather than the balance as it falls, which is why the total in dollars is the honest number to compare.

Weigh it against the return

The useful question is not whether funding is cheap, but whether the job is worth more than the money costs. Work through it plainly:

• What will the funds let you do that you could not do otherwise?
• What margin, saving or revenue does that job bring in, and when?
• Does that return comfortably exceed the total cost of the facility?
• Can the business meet the weekly repayments from its normal trading cash flow while the job plays out?

A stock buy that captures a bulk discount, or a contract that would otherwise be turned away, can justify a short-term cost many times over. Funding a job with thin margins, or covering a loss that will recur, rarely does.

Term matters as much as price

On flat weekly pricing, a longer term costs more in total, and a shorter term means larger weekly repayments. Match the term to the requirement. If the job pays out in ten weeks, there is little reason to carry the facility for twice that long. If the weekly repayment on a shorter term would squeeze the account, a longer term may be the more sensible choice.

Finishing early can also change the picture. Ask any provider how early repayment affects the remaining cost before you sign, rather than after.

Your actual schedule is set out in your letter of offer, and every facility is subject to credit approval. If you want to see what a specific requirement would cost, an indicative read only takes a few minutes.