What to compare in business loan offers
Financer's business loan calculator says the APR is the better number for comparing offers because it folds in certain fees, and that the plain rate alone can hide the extras. It also explains that a longer term lowers your monthly payment but raises the total interest you pay. Lenders often charge an upfront origination fee that may be taken from the funds before you receive them.
So compare more than one number: the monthly payment, the total interest and fees, the total cost of borrowing, the APR and the cash you actually receive. This calculator works them all out for each offer with the same method, so a low rate with a high fee does not look cheaper than it is.
Worked example: three offers for $100,000
Offer A is 9.5% over 84 months with a 2% origination fee deducted from the loan. The monthly payment is $1,634.40, the total interest is $37,289.45 and the fees are $2,000.00, so the total cost is $39,289.45, an APR of 10.15%, and you receive $98,000.00. Offer B is 8.5% over 84 months with a 3.5% fee and $750 of closing costs. The payment is $1,583.65, the total interest $33,026.48, the fees $4,250.00 and the total cost $37,276.48, an APR of 9.88%, with $96,500.00 received.
Offer C is 10.5% over 60 months with a 1% fee and $300 of closing costs. The payment is $2,149.39, the interest $28,963.40, the fees $1,300.00 and the total cost $30,263.40, an APR of 11.07%, and you receive $99,000.00. Offer C costs $9,026.04 less than Offer A overall, Offer B has the lowest payment and the lowest APR, and Offer C pays out the most cash.
APR or total cost: which one to trust
They answer different questions, so the calculator names a winner for each. On $40,000 with three short offers, Offer A (9.5% over 12 months, 2% fee) has an APR of 13.33%, Offer B (8.5% over 18 months, 3.5% fee and $750) 15.76% and Offer C (10.5% over 6 months, 1% fee and $300) 16.68%. Offer A has the lowest APR, but Offer C has the lowest total cost, $1,933.89 against $2,888.09 for Offer A, because the money is outstanding for only six months. The payment on Offer C is also the highest, $6,872.32 a month.
Choose the cost winner if you can afford the payment, the APR winner if you want the best price for each dollar borrowed, and the payment winner if cash flow is tight.
Origination fees: deducted, added or paid separately
Choose how the origination fees are taken. Deducted means you receive less than you borrow and repay the full amount. Added means the fee is added to the loan and you pay interest on it, so you receive the full amount. Paid separately means you pay it in cash. On $250,000 with the fees added, the payments are $4,167.72, $4,097.69 and $5,427.21, and Offer A's total cost is $100,088.09.
Comparing two offers
Choose two offers to ignore the third. With only Offer A and Offer B from the first example, Offer B costs $2,012.97 less than Offer A in total, has the lower payment and the lower APR, but you receive $98,000.00 from Offer A and $96,500.00 from Offer B.
What this estimate leaves out
This is a planning estimate for fixed monthly payments over the term you enter. It does not model interest-only periods, extra payments, prepayment charges, variable rates, personal guarantees, collateral or lender eligibility. Lenders may round payments or calculate interest differently, so the figures in your agreement are the ones that count.
To explore one offer in depth, with extra payments and early payoff, use the business loan calculator .
To work out an APR from an offer's payment and fees, use the business loan APR calculator .
Use the right country page
This page stays in US dollars and uses US terms: origination fee, closing costs and APR as the nominal annualised rate. The country choices above the inputs open separate local pages. Choosing United Kingdom opens the business loan comparison calculator, which uses arrangement fees, flat-rate quotes and APR as the effective annual rate. The inputs reset and amounts are not converted.
Inputs for the compare business loans calculator
Offers to compare
Two offers or three. The third offer is ignored when you choose two.
Origination fees are
Whether the fees are deducted from the loan, added to it or paid separately. It applies to every offer.
Amount you need
The amount you want to borrow, the same for every offer, before any fee is taken from it.
Rate
The yearly interest rate on each offer, before fees.
Term
The number of months you would take to repay each offer.
Origination fee and closing costs
A percentage of the amount, plus any fixed closing costs paid in cash at the start.
CALCULATOR QUESTIONS
US compare business loans calculator questions
How do you compare two business loan offers?
Compare the total cost of borrowing, the APR with fees and the monthly payment for each, using the same amount. In the example Offer C costs $30,263.40 against $39,289.45 for Offer A.
Is the lowest APR always the cheapest loan?
No. A shorter loan can have a higher APR and still cost less in dollars. On $40,000 Offer A has the lowest APR, 13.33%, but Offer C costs $1,933.89 against $2,888.09.
Does a lower monthly payment mean a cheaper loan?
Not usually. A longer term lowers the payment but adds interest. Offer B has the lowest payment, $1,583.65, and its total cost is $37,276.48 against $30,263.40 for the shorter Offer C.
Do origination fees affect the APR?
Yes. The APR includes the fees. Offer B has the lowest rate, 8.5%, but its 3.5% fee and closing costs put its APR at 9.88%.
How is the APR calculated?
It is the nominal annualised rate at which the payments repay the cash you receive after fees. Offer A's 9.5% rate and 2% fee give an APR of 10.15%.
What happens if I change country?
The United Kingdom option opens the separate business loan comparison calculator, in pounds, with arrangement fees and flat-rate quotes. Your inputs are reset rather than converted.