Know Before You Owe
Weâve built best-in-class business loan calculators to help you find the lowest-cost business financing option available to your business.
Calculating and understanding APR is one of the most complicated and frustrating parts of the business loan search. But, APR is the one tool that can ensure you choose the lowest-cost loan available to you.
Select a business loan calculator below to easily figure just how much that small business loan will cost you. Or, keep reading to learn more about what APR actually is and why it tells you more about a loan's price than an interest rate.
How you calculate APR depends on what kind of loan offer you have received. There isn't a one-size-fits-all APR calculator. That's why we created specific APR calculators for the most common types of business loans. Unsure which APR calculator is right for you? Use this handy table to decide.
You're probably very familiar with the term APR, after seeing it on credit card statements, mortgage offers, etc. etc. But do you actually know what APR is? And no, it isn't the same thing as interest rate. Let's talk about what APR is and why it is such an important part of any credit decision.
APR, also known as the Annual Percentage Rate, represents the total cost of borrowing money. Do not confuse APR with interest rate, even though they are both expressed as a percentage. Yes, loans will have an interest rate, but lenders will often charge fees on top of interest, such as closing costs or an origination fee. APR represents the interest rate plus any fees associated with a loan, and can also be influenced by the term of a loan, especially if you are considering a shorter-term loan product. In most cases, APR is the most accurate representation of what a loan will cost you. That being said, it isnât always the best way to compare two loans, especially if the loans have different terms. Read on to learn more.
APR is everywhere, and for good reason. In fact, the government requires credit card companies and many loan issuers to provide you, the consumer, with APR. Why?
Without it, you could end up getting into a credit product that you may think is less expensive than it really is and, in the end, may be unable to financially support the unexpected cost. More importantly, APR gives consumers the ability to accurately shop for credit products.
For example, letâs say youâre quoted an interest rate of 13% at two different lenders, but in addition to the interest rate, one lenderâs fees amount to an additional 2% and the other lenderâs fees amount to 3.5%. If you simply looked at the interest rate, you would think their offers were identical.
This why APR is so important. Not only does it let you understand the true cost, but it gives you the ability to see how prices really differ lender by lender. In the first example, the first lender would end up costing you 15% APR, while the second would cost you 16.5% APR. Thatâs a pretty significant difference, and the more money you borrow, the more that 1.5% difference will cost you.
One thing to add is, although APR is very important, it shouldnât be the only factor in your decision. If two lenders are offering you APRs that are very close, you may want to make your choice by looking at a few other factors:
The lenderâs reputation and customer service. If you have done your research on both lenders, and see one has much better reviews, that may be the lender you want to work with. And, if one lender has been much more pleasant to work with up to this point, chances are that will be the case down the road too. It may be worth it to pay a tad more to work with a company you like better.
Is there collateral required? If one lender is asking you to put up collateral, and the other isnât, you may be better off going with the lender that doesnât require collateral. In the worst case scenario, your assets will be safe.
Is there a pre-payment penalty? If one lender has a pre-payment penalty but the other does not, it might be better to go with the lender without the penalty. Why? If you have any plans to pay off the loan early, you wonât have to pay the fee (usually equivalent to a percent of the remaining amount). This will most likely end up saving you money, even if this lender originally had a higher APR.
Is there a difference in total cost and term? APRs can differ widely if the length of time that your loan would be active are not the same. In general, a shorter-term loan will have a higher APR than a longer-term loan with similar fees and interest rates, but taking that loan for a longer period of time can cost more in dollars overall. In some cases, it makes sense to take money out for a shorter period of time and pay less in total dollars interest.
Keep these things in mind. And, in general, you should feel suspicious when a lender will not reveal their APR. It is a crucial part in any loan search, and will help you make the best, and most educated, choice for your business.
Understanding how to calculate APR is not for the faint of heart. Itâs near impossible to do by hand, so business loan calculators are, without a doubt, the much easier way to go.
To give you a little bit of insight, here are the factors that are most important in the APR calculation:
These will, of course, differ across loan types, and be expected to answer different questions for each product. For example, if you are looking at a merchant cash advance calculator, that calculator will want to know what your projected monthly credit card sales are.
If you have any questions about calculating APR or how our business loan calculators work, please give us a call at 1-800-Fundera and weâll be happy to walk you through it!
Our business loan calculators make it simple. Which business loan calculator best suits your financing needs?
Hereâs something you have to remember: APR will almost always be higher than interest rate. And in many cases, especially if you are looking at non-bank loans, the APR can be incredibly high. It isnât impossible to find products with single digit APR online, but it is definitely harder. Your best bet for single-digit APRs would be with an SBA loan or a medium-term loan.
Popular online products like invoice financing, short-term loans, and merchant cash advances often have very high APRs, not just because theyâre easier products to qualify for, but because of the way the products are structured. Take short-term loans, for example. As these loans have daily payments with terms of only 3 months to 18 months in length, the APR is significantly higher than longer-term products with monthly payments. But, donât be freaked out by this high number. Often, longer-term loans may actually have a comparable (or higher) total cost for the loan as you are paying the loan off for a much longer period of time. The APR appears drastically lower for longer-term loans as you are paying a much lower interest rate.
Knowing the APR on a product like short-term loans is absolutely essential, especially if you are looking at offers for a few product types. But, if you are only eligible for short-term loans, understand that the APR will most likely be high, no matter what. In this case, use the APR to compare different offers from lenders, and ensure you understand the costs. But, donât let a number alone discourage you. If you need cash for a short-term need and are confident that the business opportunity you are pursuing will generate profit in excess of the financing costs, then it may still be a very smart financial move for your business.
If you are unhappy with the APRs you are being quoted from lenders, or if the cost doesnât make sense for what you want to use the money for, then it might be best for you to strengthen your loan application and then reapply. The 3 most important parts of your business loan application are revenue, cash flow, and your personal credit score. If you take some time to work on these 3 factors, and apply again, you may be able to find lower APRs. Check out our Business âFundabilityâ tool that helps you track and improve these (and other) metrics. Simply sign up here to access your fundability dashboard.
Donât forget -- it never hurts to negotiate. If you are unhappy with your APR, try talking to your lender. Especially if you have other offers on the table, you could get a lender to lower the interest by a point or two, or even waive or lower their origination fee.
If you have any questions on whether or not a loan with a high APR is the right fit for your business, feel free to give us a call here at Fundera. Weâre here to help you evaluate not only your loan options, but whether or not a loan is the best move for your growing business.