Business Funding FAQ: 50 Questions Answered
Everything you've ever wanted to know about business funding — from merchant cash advances to SBA loans, credit requirements to application tips. Organized by category for easy navigation.
General Business Funding Questions
1. What types of business funding are available?
The main types include: merchant cash advances (MCA), working capital loans, business lines of credit, equipment financing, invoice factoring, revenue-based financing, SBA loans, term loans, and commercial real estate loans. Each serves a different purpose — the right choice depends on how much you need, how fast you need it, and your credit profile.
2. How much business funding can I get?
Typical ranges: MCAs ($5K-$2M), working capital loans ($10K-$500K), lines of credit ($10K-$1M), equipment financing ($5K-$5M), SBA loans ($500-$5M). Most alternative lenders approve 1-2x your monthly revenue for unsecured products.
3. How fast can I get business funding?
Same-day for MCAs and revenue-based financing — learn more about same-day business funding. 24-48 hours for working capital and lines of credit. 3-7 days for equipment financing. 2-8 weeks for bank loans. 2-3 months for SBA loans.
4. What's the difference between a loan and a line of credit?
A loan gives you a lump sum upfront with fixed payments. A line of credit gives you access to a pool of funds you can draw from as needed, paying interest only on what you use. Lines of credit are revolving — as you repay, the credit becomes available again.
5. What's the difference between a broker and a direct lender?
A direct lender (like OnDeck or BlueVine) offers their own products with their own terms — one set of rates, take it or leave it. A broker (like FSE) shops your application to multiple lenders simultaneously, creating competition that typically results in better rates and more options.
6. Should I use a broker or apply directly?
A broker is almost always better for getting the best deal. One application goes to 50+ lenders, you get multiple offers to compare, and lenders compete for your business. The only time going direct makes sense is if you have an existing banking relationship or want a very specific product from a specific lender.
7. Are there upfront fees for business funding?
Legitimate lenders and brokers do NOT charge upfront fees. If anyone asks for money before funding you, that's a major red flag. Fees (origination, closing, etc.) are typically deducted from the funded amount, not paid separately upfront.
8. Is business funding tax deductible?
Generally, yes — the interest and fees paid on business funding are deductible as business expenses. The principal (the amount borrowed) is not deductible. Equipment purchases may qualify for Section 179 deductions. Always consult your CPA for specifics.
9. What happens if I can't repay my business funding?
Contact your lender immediately. Understanding your business loan terms before signing can help avoid this situation. Many will restructure payments (lower amounts, longer terms) rather than pursue default. If you stop paying entirely, consequences can include collections, legal action, credit damage, and potential seizure of personal assets if you signed a personal guarantee.
10. Can I get business funding as a sole proprietor?
Yes. Sole proprietors can access most funding types, though some lenders prefer or require a registered business entity (LLC, Corp). Having a separate business bank account (not personal) significantly improves your options.
Merchant Cash Advance (MCA) Questions
11. What is a merchant cash advance?
An MCA is a purchase of your future business receivables — not a loan. A funding company advances you a lump sum, and you repay through a percentage of your daily or weekly sales. Full MCA guide →
12. How does MCA repayment work?
Most MCAs today use fixed daily or weekly ACH debits from your business bank account. Some use a percentage of daily credit card sales. Payments continue until the full repayment amount is reached, typically over 3-12 months.
13. What is a factor rate?
A factor rate is the MCA pricing mechanism — a decimal number (like 1.30) that you multiply by your advance to get total repayment. Our MCA complete guide breaks this down in detail. Example: $100,000 × 1.30 = $130,000 total repayment. Unlike APR, factor rates are fixed — the total cost doesn't change based on how fast you repay.
14. What factor rate should I expect?
Typical factor rates range from 1.15 to 1.50 depending on your risk profile. Strong businesses (2+ years, high revenue, good credit, no existing positions) get 1.15-1.25. Average profiles get 1.25-1.35. Challenging profiles get 1.35-1.50.
15. Can I pay off an MCA early?
Depends on the provider. Some offer prepayment discounts, others require the full repayment amount regardless. Always ask about prepayment terms before signing.
16. What is MCA stacking and why is it dangerous?
Stacking means having multiple MCAs from different providers simultaneously. Each one has daily payments, and the combined deductions can exceed what your revenue supports, creating a debt spiral. We recommend never having more than 2 positions at once.
17. Is an MCA considered a loan?
No. Legally, an MCA is a commercial transaction (purchase of receivables), not a loan. This means it's not subject to usury laws or Truth in Lending Act requirements in most states, though some states are adding MCA-specific regulations.
Credit & Qualification Questions
18. What credit score do I need for business funding?
It depends on the product: MCAs require no minimum (many don't check). Revenue-based financing: 500+. Working capital: 550+. Lines of credit: 580+. Online term loans: 600+. SBA loans: 650+. Bank loans: 680+. Full requirements breakdown →
19. Can I get business funding with bad credit?
Yes. MCAs, revenue-based financing, and some working capital products accept all credit scores. Your monthly revenue matters more than your credit score for these products. Bad credit funding guide →
20. Will applying for business funding affect my credit score?
Most alternative lenders perform a soft credit pull during the application, which does NOT affect your score. If you accept an offer and proceed, some may do a hard pull, temporarily lowering your score by a few points. Using a broker means one inquiry instead of many.
21. How long do I need to be in business to get funding?
MCAs: 4-6 months. Working capital: 6 months. Lines of credit: 6-12 months. Equipment financing: 6 months-2 years. Bank loans: 2+ years. SBA loans: 2+ years.
22. What if I've been turned down by a bank?
Bank denial doesn't mean you can't get funded. Banks reject 70-80% of applicants. Alternative lenders have completely different criteria — what disqualifies you at a bank might not matter at all for an MCA or working capital loan.
23. Do I need a business bank account?
Yes, for virtually all business funding products. Lenders evaluate your bank statements as the primary qualification tool. If you're using a personal account for business, open a dedicated business account and build 3-4 months of history.
24. What do lenders look for in my bank statements?
Average monthly deposits, average daily balance, number of negative balance days, NSF fees, existing daily/weekly payment obligations, revenue consistency, and deposit trends (growing vs. declining).
25. Can I get funding with a tax lien?
It's difficult but not impossible. Some alternative lenders will work with active tax liens if the amount is small relative to your revenue and you have a payment plan in place. Be upfront about any tax issues — hiding them never works.
Working Capital Questions
26. What is working capital?
Working capital is the cash available for day-to-day operations: Current Assets minus Current Liabilities. It covers payroll, rent, inventory, utilities, and other operating expenses. Working capital guide →
27. How do I calculate how much working capital I need?
Monthly expenses minus expected monthly revenue = monthly gap. Multiply by the number of months you expect the gap to last, then add 15-25% as a buffer. Working capital formula →
28. What's the difference between a working capital loan and an MCA?
Working capital loans typically have longer terms, lower rates, and monthly payments. MCAs have shorter terms, higher rates, and daily payments but are faster and easier to qualify for. For a deep comparison, read MCA vs. bank loans. For many businesses, the practical difference is speed and credit requirements.
29. Can I get working capital for a seasonal business?
Yes. Many lenders specialize in seasonal businesses. The key is applying during or just after your peak season when bank statements look strongest. Some products (like lines of credit) let you draw during slow months and repay during peak.
Equipment Financing Questions
30. How does equipment financing work?
You identify equipment, apply for financing, and the lender funds the purchase. The equipment serves as collateral. You make monthly payments over 2-7 years, and upon full repayment, you own the equipment outright. Equipment financing guide → | Current equipment financing rates →
31. Should I lease or buy equipment?
Buy if the equipment has a long useful life and you'll keep it long-term. Lease if the technology becomes obsolete quickly, you want lower monthly payments, or you prefer to upgrade regularly.
32. Can I finance used equipment?
Yes. Most equipment lenders finance both new and used equipment. Used equipment may have slightly higher rates and shorter terms, but it's absolutely financeable.
33. What are the tax benefits of equipment financing?
Section 179 allows you to deduct the full purchase price of qualifying equipment in the year it's placed in service (up to ~$1.22M in 2026). Bonus depreciation provides additional first-year deduction benefits. Lease payments are typically 100% deductible as a business expense.
34. Do I need a down payment for equipment financing?
Not always. Many lenders offer $0 down, especially for businesses with good credit. Putting 10-20% down typically gets you a better rate and monthly payment.
Business Line of Credit Questions
35. How does a business line of credit work?
You're approved for a maximum credit limit. Draw funds as needed, pay interest only on what you use, and as you repay, the credit becomes available again. It's like a business credit card with higher limits and lower rates. LOC guide →
36. What's the difference between secured and unsecured lines of credit?
Secured LOCs are backed by collateral (assets, receivables) — lower rates, higher limits, easier approval. Unsecured LOCs have no collateral requirement — higher rates, lower limits, stricter credit requirements.
37. How much does a line of credit cost?
Bank LOCs: 7-15% APR. Online lenders: 10-35% APR. Alternative lenders: 15-45% APR. Plus potential fees: draw fees (1-2%), annual maintenance ($0-250), and origination (0-3%).
38. Should I get a line of credit before I need one?
Absolutely yes. The best time to get a line of credit is when you DON'T need it — your financials are stronger, you can negotiate better terms, and you'll have instant access when an emergency or opportunity hits.
Invoice Factoring Questions
39. What is invoice factoring?
Invoice factoring is selling your unpaid invoices to a factoring company for immediate cash (80-95% of invoice value). When your customer pays, you receive the remainder minus a factoring fee. Factoring guide →
40. How much does invoice factoring cost?
Factoring fees typically range from 1-5% of the invoice value, depending on volume, contract type (recourse vs. non-recourse), and your industry. A 3% fee on a $10,000 invoice costs $300 for immediate access to $9,000+.
41. Does my credit matter for invoice factoring?
Your credit barely matters — the factoring company cares about your CUSTOMER'S creditworthiness (since they're the ones paying the invoice). This makes factoring one of the most accessible funding options for businesses with bad personal credit.
42. Can new businesses use invoice factoring?
Yes! Factoring is available to very new businesses (even under 6 months) as long as you have outstanding invoices from creditworthy customers. It's one of the few funding options open to true startups.
Application Process Questions
43. What documents do I need to apply for business funding?
For alternative funding: 4 months of business bank statements, government photo ID, voided business check, and EIN. See our full business loan requirements breakdown. For bank/SBA loans: add 2-3 years of tax returns, business plan, financial statements, and collateral documentation.
44. How long does the application take?
Alternative funding applications: 5-15 minutes. Bank loan applications: 2-4 hours (gathering all documentation). The application itself is quick — it's gathering documents that takes time.
45. What happens after I apply?
The lender/broker reviews your bank statements and application. For alternative funding, expect a call from an underwriter within hours. You'll receive offer(s) to review, accept, sign electronically, and receive funding via ACH deposit.
46. Can I apply to multiple lenders at once?
You can, but applying individually means multiple credit inquiries. Using a broker is more efficient — one application goes to many lenders with typically one soft pull.
47. What are common reasons applications get denied?
Insufficient monthly revenue, too little time in business, excessive NSF fees, too many existing funding positions, active bankruptcy, declining revenue trend, or incomplete/inaccurate information.
48. How do I improve my chances of approval?
Clean up bank statements (no overdrafts for 3-4 months), pay down existing debt, apply during a strong revenue period, have all documents ready, be honest on the application, and use a broker to reach the right lenders.
49. What is a UCC filing and should I worry about it?
A UCC filing is a public notice that a lender has a security interest in your business assets. Most alternative funding requires one. It's standard practice — it doesn't mean the lender owns your assets, just that they have a claim priority if you default.
50. How soon can I get more funding after my current position is paid off?
Many businesses can get new funding once they've paid down 50-60% of their current position — you don't have to wait until it's fully paid off. Some lenders offer renewals with additional funding before the original advance is complete.
Still Have Questions?
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