Business Term Loan Rates: What You Will Really Pay

Why one number cannot describe term loan pricing

Term loan pricing ranges widely because each funder prices risk differently, and the product itself varies from bank-style amortizing loans to short fixed-fee loans.

Search for a rate and you will find ranges so wide they are nearly useless. That is not evasion. A ten-year amortizing loan on a profitable ten-year-old company is a different risk than a twelve-month loan to a business with eight months of history.

Four inputs move the price the most: the strength of your credit and cash flow, the length of the term, whether there is collateral, and how fast the funds must arrive. Faster and less documented generally costs more. Slower and better documented generally costs less. Our broader business loan rates guide covers the full range of products.

Interest rate, factor rate and APR are different things

An interest rate accrues on a declining balance. A factor rate is a fixed multiple of the amount funded. APR converts either into a yearly cost so you can compare them.

Some term loans quote an interest rate, with payments that gradually shift from mostly interest toward mostly principal. Others quote a factor rate such as 1.20, meaning you repay 1.20 times the amount funded regardless of how early you pay. They look nothing alike on paper.

Illustrative example: $50,000 at a 1.20 factor means $60,000 repaid. Over twelve months that is $5,000 a month, and the $10,000 cost is roughly 20 percent of the amount funded for the year, though the effective annual rate is higher because the balance falls as you pay. Over six months the same factor would be a far higher annualized cost. See factor rates explained and what a 1.3 factor costs.

What moves your rate up or down

Credit, monthly revenue, deposit consistency, time in business, existing debt and collateral all influence the offer. You can improve several of them.

Funders read your file the way a mechanic reads an engine: steady, repeatable output is what they want to see. Items that typically help:

• Consistent monthly deposits with few negative-balance days
• Higher revenue relative to the payment you are asking to carry
• Longer time in business and a clean payment history on existing debt
• Collateral or a larger down payment, where the loan is tied to an asset

Items that typically hurt include stacked recent advances, frequent overdrafts and a sudden drop in deposits. Paying down a balance or waiting a month for a seasonal swing to pass can change the offer more than shopping around does.

Compare offers by total cost and monthly payment

Line offers up on three numbers: total repaid, term in months and the monthly-equivalent payment. Then check them against what the money will produce.

Offer B has the lowest total cost, but its payment may squeeze cash flow. Offer C costs the most overall but is the easiest to carry. Neither is automatically right. The answer depends on how quickly the funded project returns cash, which is the question our payback period calculator approach is built around.

Fees that sit outside the rate

Origination fees, documentation fees and prepayment terms can change the true cost. Ask whether any fee is deducted from the funded amount.

A quote that says $100,000 may deliver less than $100,000 if an origination fee is netted out at closing. You still repay the full face amount, so your real cost is higher than the headline. Ask four questions every time: Is there an origination or documentation fee? Is it deducted from the proceeds? Is there a prepayment penalty or a discount for early payoff? Are payments daily, weekly or monthly?

Payment frequency matters more than it sounds. A daily debit can feel lighter per payment while taking the same total from a month of revenue. Match the schedule to how your deposits actually arrive.

Getting a term loan quote through ROI Funder

ROI Funder matches your file to funders in our network, with term loans funded in 1 to 5 days. Applying uses a soft credit pull and carries no obligation.

Eligibility starts at 500+ FICO, six months in business and $20,000 or more in monthly revenue. Apply online in a few minutes, add three months of business bank statements and your file is complete. Approved, complete files can see funds the same business day on faster products, and term loans typically take 1 to 5 days.

We show you the total repaid, the term and the monthly-equivalent payment before you decide. Read the full term loans page, or compare with short term loans if you need a shorter schedule.