"Summarize this funding agreement and flag anything risky."
I pasted a merchant cash advance contract into a chatbot with that exact prompt. It came back with a clean, confident summary. Purchase price, specified percentage, reconciliation clause, a polite note about "fees."
It never mentioned that the deal cost about 126% a year.
The AI wasn't broken. I asked a vague question, so I got a vague answer. Here's the one skill that makes AI useful on money documents: know the number you're looking for before you ask. The rest of this post is that skill, worked out once.
The math the AI skipped
Here's the deal on the page:
Advance: $50,000.
Factor rate: 1.35, so you pay back $67,500.
Payments: daily ACH debits over about 126 business days, which is $535.71 a day.
The $17,500 cost looks like 35%. But you start paying it back the next business day, so on average you only have about half the money for half the time. Run the daily payments as a cash flow and the annualized rate comes out to roughly 126% APR. Compounded, it's even higher.
You don't have to do this by hand. Our cost-of-capital calculator does it. But once you know that's the number that matters, your prompt changes.
The prompt that works
"Here is an MCA agreement. Extract: the advance amount, the total payback, the payment amount and frequency, and the estimated term. Then calculate the annualized cost as an IRR from the daily payment schedule. Show the formula. Then list any clause that allows a confession of judgment, a personal guarantee, a blanket UCC lien, or a change to the debit amount without reconciliation."
That prompt works because every item on it is something you already understand. Each one has a page that explains it:
Factor rate to APR. The calculator.
Confession of judgment. A clause where you agree ahead of time to let the funder get a judgment without a trial. New York stopped allowing them against out-of-state businesses in 2019. Our contract clause guide walks through it.
Blanket UCC lien. A filing that can reach all your business assets. See the UCC § 9-502 financing-statement rule, and why that filing gets your number sold.
Debt service coverage. If you're comparing the advance to a bank or SBA loan, SBA's SOP 50 10 8.1 requires at least 1.10x coverage on 7(a) Small loans. That's the bar the cheaper money will hold you to.
The same trick works on calls
The same rule applies to the broker calls that come after you fund. "Is this illegal?" Gets you a shrug. This gets you a usable answer: "Here's my call log. Flag every call after the written stop request dated [date], and mark which ones were prerecorded." Read our TCPA explainer first so you know why those two columns matter.
Do this before you trust an AI with a money document
Write down the one number you need (APR, total payback, DSCR) before you open the chat.
Ask the AI to show its formula, then check one line of the math yourself.
Ask it to quote the exact clause text, not paraphrase it. Paraphrases are where risky terms get softened.
Have a lawyer or CPA review anything you're about to sign. The AI is the first reader, not the last.
