You ran the numbers on the offer and the cost stopped you cold. Maybe it was the factor rate, maybe the total payback, maybe a friend who saw the paperwork and winced. Now you are stuck between two fears that cannot both be right: that you are about to overpay badly, and that you are about to let a real opportunity die from caution.
Here is the uncomfortable truth this industry rarely says plainly: there is no universal number at which an offer becomes too expensive. A deal at 35 cents per dollar can be a clearly good decision, and a deal at 15 cents can be a clearly bad one. What decides it is not the price alone but what the money does. This article gives you that framework, with worked numbers, so you can reach your own verdict instead of borrowing someone else's.
Expensive compared to what?
Sticker shock compares the offer to zero, to a world where money is free. That is not the comparison you actually face. The real comparison is between three futures: you take the money and put it to work, you find cheaper money on a slower clock, or you do not borrow and live with whatever the gap costs you. An offer is only too expensive when one of the other two futures beats it in dollars.
So the framework has two halves. First, put the cost of the offer in plain dollars. Second, put the return on the use of funds in plain dollars. The decision falls out of holding those two numbers next to each other, and most of the agony around funding decisions comes from trying to decide while one of the two is still a vague feeling.
First, get the cost into dollars
Suppose the offer is a $40,000 advance at a 1.35 factor rate, remitted over roughly eight months. The payback is $54,000, so the money costs $14,000, or 35 cents per dollar borrowed. If a $1,500 fee is withheld at funding, you really receive $38,500, and the cost rises to $15,500 on $38,500, about 40 cents per dollar. That is the honest number for this offer.
If you have more than one offer, normalize them all the same way before judging any of them: total payback, net dollars received, cost per dollar, then cost per dollar per month so different terms compare fairly. The full method is in how to compare funding offers, and the offer comparison tool will do the arithmetic for you. For an advance specifically, the MCA calculator shows the same math from a single offer's inputs.
Then price the use of the funds
Now the half most owners skip. The same $40,000 offer, at the same cost, changes character completely depending on what the money does. Walk through three uses with real arithmetic.
Use one: money that earns money
Say the $40,000 buys inventory you are confident sells for $70,000 within the term, based on your own sell-through history. The gross margin on the buy is $30,000 and the money costs $14,000 to $15,500. You are paying a painful price and still finishing well ahead, and the deal survives even if sales come in slower than planned. Expensive money attached to a return that clearly beats it is not too expensive. It is just visibly priced, which quieter costs never are.
Use two: money that covers a recurring loss
Now say the business loses $5,000 a month and the $40,000 would cover that shortfall for eight months. Nothing about the loss changes, so at the end of the term the shortfall is still there, the $40,000 is gone, and you also paid roughly $14,000 for the privilege, with the remittances themselves deepening each month's hole. The identical offer that made sense for inventory fails here at any price, because money that plugs a leak without fixing it has no return to measure against. The honest options in that situation start with fixing cash flow without borrowing.
Use three: money that prevents a concrete loss
Finally, say your main machine is down and every working day it stays down costs $2,000 in billable work, so ten working days of waiting is $20,000 gone. If $40,000 replaces the machine this week, the cost of the money is competing against the cost of the downtime, and the downtime is losing. The key word is concrete: this logic only works when the loss is specific, near, and priced from your own numbers rather than from fear.
The break-even question
All three scenarios reduce to one question you can ask of any offer: what do the funded dollars have to produce before I am ahead? Take the total payback plus any fees, subtract net dollars received, and that difference is the hurdle. For the $40,000 offer above, the hurdle is roughly $14,000 to $15,500: the use of funds has to earn or save at least that, inside or reasonably near the term, before the deal produces anything for you.
Write the hurdle down and then be honest about the other side of the ledger. A purchase order in hand clears a hurdle differently than a hope that marketing spend performs. If the return side of the equation only works in the optimistic version of the story, the offer is too expensive for that use, whatever the rate is. When debt is actually good for a business is this same test applied more broadly.
Why nobody honest can tell you a fair rate
It would be easier if there were a published fair price to check your offer against. There is not. Funders price by risk: months in business, revenue pattern, average balances, existing positions, industry, and their own appetite that week. The same file can get very different quotes from different funders, which is exactly why holding more than one offer is worth the effort, and why anyone quoting you a rate before seeing your file is guessing or selling. We wrote about that practice in why we won't quote a rate upfront.
What you can control is the shape of the comparison: normalize every real offer you hold, test each against the use of funds, and let the arithmetic replace the folklore. A second opinion on the math is cheap. Folklore about rates is not.
Signs an offer is failing the framework
No verdict from us, but these patterns are worth treating as loud warnings when you see them in your own numbers.
- The return is a feeling. You cannot state, in dollars from your own history, what the funded use earns or saves inside the term.
- The payment eats your margin of safety. Run the debit through the payment affordability checker; if a normal slow week makes it bounce, price is no longer the main risk.
- The money pays old debt without changing income. Refinancing that lowers the payment can be rational; borrowing expensively to service other borrowing while revenue stays flat compounds the hole.
- The term outlives the benefit. Paying for money long after the thing it bought stopped producing is pure cost.
- You are deciding under a countdown. Real offers survive a day of scrutiny. Pressure to sign before you can do this math is information about the counterparty.
If the offer fails, the problem might still be real
Deciding an offer is too expensive does not make the payroll gap or the dead machine disappear, so end the analysis with the alternatives, not just the rejection. That can mean holding out for a slower, cheaper product, taking a smaller amount matched tightly to the actual need, negotiating time from the vendor instead of money from a funder, or concluding the timing is wrong altogether, which is its own decision with its own math: see should I take the money or wait.
And if you would rather talk it through than decide alone: we are a broker, we see files like yours weekly, and telling an owner a deal does not clear the hurdle is part of the job we actually enjoy.
Frequently asked questions
Is a 1.35 factor rate too high?
There is no universal answer, and anyone who gives you one without seeing your numbers is guessing. On $40,000, a 1.35 factor means the money costs $14,000. Whether that is too high depends entirely on what the $40,000 earns or saves inside the term: a use that clearly returns more than the cost can justify it, and a use with no measurable return fails at far lower prices.
Why won't anyone tell me what a typical rate is?
Because pricing is set per file, not per market. Funders weigh months in business, revenue patterns, balances, existing positions, and industry, and the same business can receive noticeably different quotes from different funders in the same week. A quoted range that ignores your file is marketing, not information. The reliable move is to collect real offers and normalize them yourself.
Is fast money always more expensive than slow money?
Speed and underwriting depth tend to trade off, and products that fund in a day or two are usually priced above products that take weeks, though the specifics vary by file and funder. The framework does not change either way: put the cost in dollars, put the return in dollars, and check whether the speed itself is producing value, such as capturing a deadline that slower money would miss.
What if the math fails but I still need the money?
That tension usually means the use of funds, the amount, or the product is wrong, not that arithmetic is optional. Options worth exploring include a smaller amount aimed at the narrowest version of the need, a different structure with a longer clock, negotiating terms with the vendor or landlord who is owed the money, and pricing what happens if you wait. When contracts or existing debts are part of the tangle, an attorney or accountant is money well spent.
How do I weigh a cheap long offer against an expensive short one?
Divide each offer's cost per dollar by its term in months to get cost per dollar per month, which puts both on the same clock. Then match the term to the purpose: short money for a short-lived need, longer money for a benefit that persists. The comparison tool at /tools/compare-funding-offers shows both offers normalized this way side by side.