When taking out a small business loan, it’s important to know exactly how your regular payments are calculated and what components go into the final cost. Being informed on the true cost of your loan options in advance will help you make the right choice. Here’s how loan charges break down.
How Loan Costs Are Calculated
Your regular loan installments will depend on various elements of your financing option. Not only does the total amount matter, but the interest rates, terms, and fees all contribute to the final balance.
When it comes to the amount of the loan, a number of eligibility factors from your application will play a role. Lenders might look for credit information, cash flow, use of proceeds, or time in business to assess your business’s financial health. To find out what requirements our lending partners look for in a small business applicant, visit our website.
The interest rate for a small business loan might be either fixed or variable. Just like the loan amount, the rate you’ll be offered might depend on your business finances and credit. If you need to build up your credit, check out our business and personal credit tips on the SmartBiz Small Business Blog.
Loan terms are the number of years you’ll have to repay the principal. As a rule of thumb, a longer term means lower monthly payments because there is more time to divide the principal payments and interest you’ll owe.
With most loans, you’ll also encounter origination fees, closing costs, and other charges. For example, SBA loans include a guarantee fee that allows the government to guarantee a large majority of the loan amount in the case of default to the bank loaning the funds,. Learn more about the SmartBiz Loans SBA loan rates and fees here. Don’t forget to take these additional costs into account and avoid any surprises. That’s where the Annual Percentage Rate (APR) comes in handy, so make sure you know how the loan’s APR compares to others with similar interest rates.
At SmartBiz, we strive to be transparent with our customers. When you’re pre-qualifying for a small business loan, you’ll see the monthly payment, rate, and APR associated with your desired loan amount and use of proceeds. Check out the easy-to-use calculator tool here!
Reducing Loan Costs
To be eligible for the most affordable loan options, start by reviewing the lender’s requirements. Strengthening your lending profile is key to approval.
At SmartBiz, we created an AI-based, educational tool called SmartBiz Advisor especially for small business owners. You’ll get a personalized analysis of your small business’s financials based on the criteria our bank partners use to evaluate them. With Advisor, you can explore how your business stacks up and improve your situation if necessary. Get started today at no cost and see how to get the low-cost funding you deserve.
Once you’ve been approved for a loan and received the deposit, keep track of your payment obligations to avoid incurring any charges if your lender has a late payment policy. Also see if there are prepayment penalties in case you want to pay your loan off early.
To help you get a sense of your loan costs when applying for an SBA loan through SmartBiz, we’ve created loan calculators that do all the work for you. Depending on your use of proceeds, choose the calculator that best applies:
Find your desired loan amount and you’ll see the interest rate, APR, and monthly payment that applies. If you have any questions, give our Loan Specialists a call at 1.866.283.8726.
* The information provided through SmartBiz Advisor, including the Loan Ready Score, is for educational purposes and is not the same as scores used by lenders for credit decisions. SmartBiz Advisor is not a financial or legal advisor as defined under federal or state law. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.