If you’ve applied for a small business loan and you’ve been approved, there are a few things you will want to analyze before deciding to accept the offer. It’s unwise to accept just any small business loan offer, even if your business is dire need of funding. You don’t want to accept a small business loan offer and regret it later because it cost you an arm and a leg.
To determine how much a small business loan will cost you over time, it’s important to analyze the different components of it. This includes the terms, interest rates/APR (i.e. annual percentage rate), and other fees (I.e. closing fees). Below, I explain the meaning of each and how it affects the overall cost of your small business loan.
- Term – The term of the small business loan is how much time you have to pay it back. When you get approved for a small business loan, you are required to back it pay in monthly increments over a term. The monthly payback amount includes the balance borrowed and interest rate. Depending on the nature of your business and financial situation, you may need a longer term to pay back the small business loan. When analyzing a small business loan offer, keep in mind the amount of time you will have to pay it back.
- Interest Rate/APR (Annual Percentage Rate) – You will be charged a percentage of the small business loan for borrowing the small business loan. You will have to pay this percentage of the small business loan on top of the original balance borrowed. According to NerdWallet, the APR is what truly communicates the overall cost of a small business loan. It determines the total amount you are actually required to pay back. When analyzing a small business loan offer, keep in mind the amount you will have to pay back in combination with the original loan amount.
- Other Fees (i.e. Closing Fees) – Some small business loans have a closing fee associated with them. These are usually non-recurring fees that are only due at the time of the loan closing (i.e. when you sign the documents to accept the small business loan offer). The amount of the closing fee usually comes out of the small business loan you’re offered. Therefore the overall amount you end up with from the small business loan is just a tad bit smaller. You are still, however, required to back the full small business loan amount, since, technically the closing fee came out the loan you accepted.