Reading a funding agreement in the order the clauses appear

Set aside forty minutes and read it in order. Not the summary email, not the term sheet, the document you are being asked to sign. Every clause below appears in most funding agreements in roughly this sequence, and each one is doing a specific job.

The economic terms, usually on page one

Four numbers matter and they are not always all present. The amount funded, or the amount you actually receive after deductions. The total you will repay — called the purchased amount, the receivables purchased amount, or the total repayment amount depending on the product. The payment amount and its frequency. And the fees, which may be netted from the funding rather than billed.

If the total repayment figure is not stated in dollars anywhere on the page, that is the first thing to ask for in writing. Several states now require a total dollar figure to be disclosed for commercial financing below a size threshold — New York's Commercial Finance Disclosure Law under NY Financial Services Law article 8, and California's regime under SB 1235 and the DFPI's rules, among others. Coverage, thresholds and effective dates differ by state, so check the current text for yours.

Definitions

Skim-proof section, and worth the two minutes. The definitions of Receipts, Collateral, Event of Default, Business Day and Affiliate do heavy work later. A percentage of "Receipts" means something different if Receipts is defined to include transfers between your own accounts, or loan proceeds, or insurance payouts.

The payment authorization

This is the ACH authorization or the split-funding instruction. Read what it permits, not what you expect. Common provisions: the right to re-present a returned debit, the right to adjust the amount, the right to debit any account you have disclosed, and the requirement that you not revoke the authorization while anything is outstanding.

Reconciliation, where it exists

In a purchase-structured advance this is the clause that reconnects what leaves your account to what you actually took in. Note whether it is automatic or on request, what documents it demands, what window you have, and whether it is conditioned on your not being in default. A reconciliation right that disappears the moment a debit bounces is a different asset from one that does not.

Representations and warranties

Statements of fact you are certifying as of signing: that the financial information is accurate, that there is no other financing outstanding, that no bankruptcy is contemplated, that there is no undisclosed litigation, that the signer has authority. These are the hooks. If one turns out to be wrong, the agreement usually treats it as a default regardless of whether payments are current.

Covenants

Promises about the future. No additional financing without consent. No change of bank account or card processor. Notice before relocating, closing a location or transferring ownership. Maintain insurance. Provide statements on request. Read this list against your actual plans for the next twelve months.

Events of default

Read it twice and count how many items describe ordinary business decisions rather than non-payment. Most lists include insolvency events, judgments or liens above a threshold, cross-defaults to other agreements with the same funder or its affiliates, and a material adverse change assessed in the funder's judgment.

Remedies

What the holder may do once a default exists: accelerate the entire uncollected balance, add default fees and collection costs, enforce the security interest, demand on the guarantee, sue. Look for language saying remedies are cumulative and non-exclusive, which means using one does not give up the others.

Security agreement and guarantee

Frequently inside the same PDF, sometimes as separate attachments with their own signature blocks. If you are told there is no personal guarantee, look for a validity guarantee or a performance guarantee before accepting that. They are guarantees; they are simply narrower.

Term, renewal and termination

Advances and term loans usually end when they end. Ongoing facilities — factoring, some lines, asset-based lines — often run for an initial term and renew automatically unless you give written notice inside a defined window before the anniversary. That is the evergreen clause. Note the window, the required method of notice, any early termination fee, and any minimum volume or minimum fee that survives.

The back matter, which is not boilerplate

Governing law and venue. Arbitration, if present, with its carve-outs. Jury and class action waivers. The notice clause, which specifies the exact address and method for anything you send — including a reconciliation request. The integration clause, saying the written document is the whole agreement. The amendment clause, requiring a signed writing. The assignment clause, which typically lets the funder sell the deal and forbids you from transferring anything. Attorney's fees. Consent to obtain credit and background reports.

Three questions to answer before you sign

1. What is the total number of dollars leaving my business, and over what period?
2. What have I promised not to do, and do I intend to do any of it?
3. What happens the first time a payment fails, and is there a cure period?

If you cannot answer all three from the document itself, you have not finished reading it — and the document, not the conversation, is what governs.

None of this is legal advice. What your agreement permits and what your state's law allows are specific to you, and a lawyer licensed in your state is the person to read the document before you sign it.