Michigan Commercial Financing Disclosures, Explained

Understanding Commercial Financing Disclosure Rules

Small business owners in Michigan often receive funding offers with confusing terms: factor rates, holdback percentages, and fees that every provider describes differently. That makes it hard to compare one offer to another. Commercial financing disclosure rules exist to address exactly this problem. Where a state has adopted them, a provider must give the business owner a standardized written summary of the offer's cost and terms before the deal is signed, much like the disclosures consumers receive with personal loans.

There is no single national rule for this. Each state decides for itself: several states have passed commercial financing disclosure laws, others have considered them, and the details vary and keep changing. For a business in Detroit, Grand Rapids, Lansing, or anywhere else in the state, the sensible step is to confirm what currently applies with the Michigan Attorney General's office, the state's financial regulator, or a business attorney. Whatever you learn, the habits in this guide will help you read any offer.

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Why Disclosure Matters for Your Business

If you run a small business, you have probably seen offers that look cheap at first glance: low payments, fast approval, and 'no hidden fees.' The actual cost can still be buried in the structure of the deal. Take a merchant cash advance quoted at a 1.3 factor rate on $20,000. You repay $26,000, so the cost is $6,000. What that means on an annualized basis depends entirely on how fast you repay. If the $26,000 comes out in daily payments over about six months, the annualized cost is roughly 110%. Stretch the same payback to about twelve months and it is roughly 55%. (Illustrative figures, assuming about 21 business days of payments per month.) A bank term loan at an illustrative 10% APR looks very different next to either one.

That is why getting the numbers in writing matters. You can always ask for them, take time to review them, and walk away if the terms are not clear. A disclosure, whether voluntary or required, shows you the price; it does not choose the best deal for you, so shopping around is still how you find it.

Common Types of Business Financing

These are the main types of financing Michigan business owners encounter, and what to understand about each:

• Term loans: a lump sum repaid with interest over a fixed period, usually in monthly payments. Ask for the interest rate, all fees, and the total of all payments.
• Business lines of credit: revolving credit you draw on and repay as needed. Ask about draw fees, maintenance fees, and how each draw is repaid.
• Merchant cash advances: a lump sum collected through a percentage of card sales or bank deposits, or through fixed daily or weekly debits. Advances are usually structured as a purchase of future receivables rather than a loan, which is why they carry a factor rate instead of an interest rate. Whether a specific agreement is treated as a loan depends on its terms, and courts have reached different conclusions, so an attorney should review anything unclear.
• Equipment financing: loans or leases for machinery, vehicles, or other equipment, often secured by the equipment itself. Ask about the down payment, end-of-lease options, and the total of all payments.
• Invoice factoring or financing: selling or borrowing against unpaid invoices for immediate cash. Ask how the fee grows the longer a customer takes to pay.

Disclosure rules do not always treat every product or every transaction the same way, so ask each provider for written terms regardless of which product you choose.

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What Information a Clear Offer Should Include

Whether or not a standardized form comes with your offer, ask the provider to give you the following in writing before you sign:

• Amount of financing: the amount you are approved for and, separately, the amount that will actually reach your account after fees.
• Estimated annual percentage rate (APR): the cost expressed as a yearly rate, including interest and fees. For a merchant cash advance, any estimate depends on an assumed repayment period, so ask what that assumption is.
• Total repayment amount: the sum of all payments, including principal, interest or factor charges, and fees.
• Payment schedule: how often you pay (daily, weekly, or monthly) and the amount of each payment.
• Other fees and terms: origination fees, closing costs, prepayment terms, late fees, and any personal guarantee.
• Collateral: any lien on business assets or specific collateral you are pledging.

Here is how that looks in practice. Suppose a funder offers $50,000 at a 1.2 factor rate to be repaid over 12 months. The total repayment is $60,000. Paid weekly, that is about $1,154 per week, which works out to an estimated APR of roughly 37%. Paid monthly, it is $5,000 per month, or roughly 35%. (Illustrative figures only; actual offers vary.) With those numbers in hand, you can compare the offer to any other on a like-for-like basis.

If a funder quotes only a factor rate and a payment amount, you can still work out the rest yourself. Multiply the advance by the factor to get the total repayment, subtract what you will actually receive to get the dollar cost, and divide the total repayment by the payment amount to see how many payments it will take. An online APR calculator can turn those figures into an annualized estimate.

How to Read and Compare Disclosure Statements

When you receive written terms from several funders, start with the estimated APR or another annualized measure. It is the most useful single number for comparing offers with different terms, and a lower figure generally means a lower cost. Be careful, though: some providers use a different measure, such as a total cost of financing expressed as a percentage of the amount funded, which is not the same as an APR. If two offers use different measures, ask both for the same one, or calculate it yourself.

Next, look at the total repayment. If one offer requires repaying $60,000 and another $55,000 for the same amount received, the second costs $5,000 less, even if the annualized rates look similar because the terms differ. Then check the payment schedule. Daily or weekly payments can strain cash flow more than monthly ones, so compare the frequency and amount to what your business can realistically handle in a slow month, not just an average one.

Finally, look for fees that sit outside the headline numbers. An origination fee deducted from your funding, for instance, raises your real cost because you repay the full amount on less money. If a fee seems excessive or unexplained, ask what it covers before you go further.

Practical Tips for Michigan Business Owners

• Ask for written terms before signing anything. If a funder hesitates or says it does not provide them, treat that as a reason to walk away.
• Compare at least two offers. Line up the total repayment, the estimated APR, and the payment terms side by side.
• Understand factor rate versus APR. A factor rate ignores time; an APR does not. The same 1.3 factor costs roughly twice as much, annualized, when repaid in six months instead of twelve.
• Check the funder's reputation. Look the company up through the state's business entity search and the Better Business Bureau, and ask other business owners about their experience.
• Get the final terms. Offers can change after underwriting, so make sure the terms you review are the ones in the agreement you sign.
• Watch for pressure tactics. A funder that insists you sign today, or asks for a fee before you are funded, is giving you a reason to slow down.

Common Mistakes to Avoid

• Focusing only on the payment amount. A low payment could mean a long term. Always look at the total repayment amount.
• Skipping the full contract. A summary cannot capture everything. The agreement may contain prepayment terms, a personal guarantee, or default provisions that never appear in a one-page overview. Some agreements also include a confession of judgment, which can let a funder get a judgment quickly if you default; several states restrict them, so if you see one, ask an attorney about it before signing.
• Assuming every funder presents terms clearly. Not all do. If an offer turns out to be different from what you were told, keep every document, ask the funder in writing to explain, and report deceptive practices to the Michigan Attorney General's office or the FTC. A business attorney can tell you what options you have.
• Ignoring cash flow. A higher annualized cost might be acceptable if the payments match your revenue cycle, while a daily debit that drains your account could put you in a bind. Make sure the payment frequency works for your business.
• Rushing. Urgency leads to bad decisions. Even when you need money quickly, take the time to review the terms and compare offers.

How Get Working Capital Now Can Help

Finding the right funding partner can be time-consuming. Get Working Capital Now is a free matching service that connects Michigan small business owners with vetted, third-party funding partners. You tell us a little about your business, and we match you with funders that offer the kind of financing you need, whether that is a term loan, a merchant cash advance, a line of credit, or equipment financing. There is no cost to you and no obligation to accept any offer. We are not a lender, and approval decisions are made by the funding partners, not by us.

Once offers arrive, use the steps above: get every number in writing, compare total repayment and estimated APR, check the payment schedule against your cash flow, and read the full agreement. Knowing how disclosure works, and confirming what applies in Michigan, puts you in a strong position to choose financing that helps your business grow without hidden costs.