Business term loans, with every fee counted

The full guide

Interest rate, fees and the real APR

The interest rate is what the lender charges on the balance you owe. An origination fee is a one-time charge, usually a percentage of the loan, taken from the proceeds or debited soon after funding. The APR combines both into an annual cost based on the money you actually received.

You can check any quote yourself. Multiply the payment by the number of payments, add every fee, and subtract the amount borrowed. What is left is the loan's full cost in dollars.

Fees weigh more on short loans. The same $100,000 at 16% with a 3% fee, repaid over 12 months instead of 36, carries an estimated APR of about 21.9%, because the fee is spread over less time.

Do not assume the lender will show you an APR. Federal Truth in Lending rules exempt credit extended primarily for business purposes. Some states fill the gap: New York and California require many commercial lenders to disclose an APR, and our state law hub covers the details. Openbook shows an estimated APR on every offer either way.

What published APRs tell you

Few lenders publish full pricing. One lender we track publishes APRs from 8.77% to 41.26% on business loans with terms of 1 to 12 years, typically for $20,000 to $250,000. Another publishes fixed rates from 8.77% on loans of $20,000 to $500,000 with a 660 minimum score. A third charges a 3% origination fee on short-term loans of $2,500 to $400,000.

A broker we track describes how the spread breaks down. Strong files, with a 680+ score, 2+ years in business, $250,000+ in annual revenue and positive cash flow, often see APRs from the high single digits to the low teens. Newer files, around a 600 score and 1 year in business, price higher and shorter, sometimes 18% to 35% APR over 12 to 24 months.

So 2 businesses asking for the same "business loan" can be quoted costs several times apart. That is why you should collect more than 1 offer and compare each one's APR, total payback and payment. Our guide on how to compare funding offers lists the questions to ask.

Weekly vs monthly on the same $100,000

Short online loans often collect daily or weekly. Lenders we track describe automatic payments each weekday, each week or each month, depending on the product. Longer bank-style loans usually collect monthly. To compare a daily-pay loan with a monthly one, multiply the daily payment by the business days in a month, about 21, and set the 2 figures side by side.

Weekly payments save $501.80 in interest because principal falls sooner, and the estimated APR stays about 18.2%. The real difference is cash flow. A business with steady daily deposits, like a restaurant, can live with weekly debits. A contractor paid in large, irregular checks may prefer 1 monthly payment set just after the biggest deposit. The loan calculator shows both schedules and the full amortization.

Prepayment, liens and guarantees

On an amortizing loan, paying early usually saves the interest you have not yet been charged. A prepayment penalty takes some of that saving back. Some lenders we track advertise no prepayment penalty, so ask for the payoff rules in writing.

Expect some form of security. One lender we track files a UCC lien on the business for its loans. A broker we track says loans under $150,000 are often unsecured but need a personal guarantee from owners with 20% or more, while larger loans often take a UCC-1 blanket lien and specific collateral is usually required only around $500,000 and up. Another lender requires a personal guarantee from the owner on its short-term loans.

Read the guarantee itself, too. Find out whether it is limited to a dollar amount or covers the whole balance, and whether it survives if you sell your share of the business.

A blanket lien can make your next financing harder to arrange, so ask whether the lien covers specific assets or all of them. Our UCC-1 guide explains what the filing does.

Why term lenders ask for more

Published minimum scores among lenders we track most often sit between 600 and 650, with some at 700. Time in business usually runs 1 to 2 years. One lender reports that its average borrower has a 740 score and 19 years in business.

Lenders also test cash flow against the new payment, often with a debt service coverage ratio. Stacked advances and frequent NSFs work against you, because every existing debit reduces the cash left to cover a new payment. Some loans are limited by state: one lender we track offers its loan product in 14 states only.

For larger loans, expect requests for business tax returns, a profit and loss statement, a balance sheet and a schedule of current debts, on top of bank statements.

Openbook matches your file to lenders whose published criteria fit and names each one before we submit. Offers often come back within 1 to 2 business days of complete documents, shown with rate, fees, payment, term, total payback and estimated APR. Apply in about 3 minutes.

When another product fits better

If you are buying a truck, an oven or a machine, equipment financing uses the asset itself as collateral, which can make approval easier than an unsecured loan. If you can wait 30 to 90 days and qualify, SBA loans carry interest rate caps set by the government and terms up to 10 years for working capital. If your need rises and falls through the year, a line of credit charges interest only on what you draw.

A term loan wins when the amount and the purpose are clear, the payback runs longer than a few months and you want 1 fixed payment. It also works for replacing several costlier short-term debits with a single schedule, as long as the new loan's total cost is lower.

Pros and cons