Business Loan Costs Explained: APR, Factor Rates and the Traps Between

The single biggest mistake borrowers make is comparing a bank’s APR against an online lender’s factor rate as if they’re the same number. They aren’t, and the difference can be tens of thousands of dollars on a mid-sized loan.

The three ways lenders quote prices

• APR: annualised cost including fees. The only number that’s directly comparable across products.
• Simple interest: a percentage of the principal, quoted monthly or for the term. Must be annualised to compare.
• Factor rate: a multiplier (e.g. 1.2× on $50K = $60K repaid). Looks small, but on short terms the effective APR is often 35%+.

Convert everything to APR before deciding

Ask every lender for the total repayment amount, the term, and the payment schedule, then have them confirm the APR in writing. Reputable lenders will. Hesitation on that question is itself useful information.

Watch the repayment frequency

Daily or weekly debits change your cash flow profile far more than the headline rate suggests. A loan that costs 2% more but debits monthly can be safer than a cheaper one taking $800 from the account every business day.