How does a factor rate compare to an APR?

A factor rate is a flat multiplier on the amount advanced, not an annual rate. Fifty thousand dollars at a factor of 1.4 means repaying seventy thousand. Because these products usually repay within six to twelve months, the equivalent APR is often several times the apparent percentage.

What credit score is needed for a business loan?

Bank and SBA lenders typically look for personal scores in the high 600s or above, along with two years in business and a debt service coverage ratio near 1.25. Online lenders accept lower scores and shorter histories, and price accordingly.

Are SBA loans actually cheaper?

Generally yes, with longer terms and rates capped relative to a base rate. The cost is time and documentation, often weeks rather than days, which is why businesses in urgent need often end up with far more expensive alternatives.

What is a personal guarantee?

A promise that you will repay the business debt personally if the company cannot. It puts your personal assets behind the loan and effectively sets aside the liability shield of an LLC or corporation for that debt. It is standard for small business lending.

Does paying off a merchant cash advance early save money?

Usually not. The total repayment amount is fixed when you sign rather than accruing over time, so early repayment means paying the same sum sooner. Some providers offer a discount for early settlement, but it must be negotiated and put in writing.

Business Loan Calculator: Term Loans, SBA & Factor Rates

Business lending contains a wider range of pricing honesty than any other corner of finance. The same company can be offered a 7% SBA loan and a product whose cost, once translated, exceeds 60% — and only one of those will be quoted as a rate.

Four products that behave differently

Term loan. A lump sum repaid in fixed installments. Predictable, amortizes like a mortgage, and is what the calculator above models.
Line of credit. A limit you draw against and repay repeatedly, paying interest only on what's drawn. Right for working-capital timing gaps; wrong for buying long-lived equipment.
Equipment financing. Secured by the asset itself, so rates are lower and approval is easier — the equipment is the collateral.
Merchant cash advance. Not a loan. A purchase of future receivables, repaid as a percentage of daily card sales, and priced with a factor rate.

Translating a factor rate

A factor rate is a flat multiplier. Borrow $50,000 at a factor of 1.4 and you repay $70,000 — a $20,000 cost. That sounds like 40%, and if repayment were spread over a full year it roughly would be.

But these products typically repay over six to twelve months, in daily increments. The rough conversion is: cost divided by amount borrowed, divided by the repayment period in years. Repay that $20,000 cost over six months and the annualised figure lands near 80% — and because the balance amortizes as you pay, the effective APR is higher still.

If a business financing offer avoids quoting an APR, the APR is the reason. Ask for it in writing before signing anything.

SBA loans: cheapest, slowest

SBA programs don't lend directly — the agency guarantees a portion of a bank's loan, which lets the bank accept less collateral and offer longer terms. The 7(a) program is the general-purpose workhorse; 504 loans fund real estate and major equipment; microloans handle smaller amounts through nonprofit intermediaries.

The trade-off is time and paperwork. Expect weeks rather than days, along with tax returns, financial statements, and a business plan. If your need is genuinely urgent, an SBA loan may not be reachable in the window — which is precisely the gap high-cost lenders are built to exploit. Applying before you're desperate is the whole strategy.

What underwriters actually look at

Three things dominate. Debt service coverage ratio — operating income divided by total debt payments — usually needs to clear roughly 1.25, meaning you generate meaningfully more than the loan requires. Time in business, with two years being a common threshold and under one year sharply narrowing the field. And personal credit, because for small businesses the owner's score is treated as a proxy for the company's reliability.

Run your own coverage ratio against the payment in the calculator before applying. If the result is tight on paper, it will be tighter in a slow quarter.

Personal guarantees

Most small business loans require the owner to personally guarantee the debt. That places your personal assets behind the company's obligation and largely negates the liability protection an LLC or corporation otherwise provides — for that debt specifically.

It's near-universal and rarely negotiable for young companies, but you should know you're signing it. Read whether the guarantee is limited (capped at an amount or a percentage) or unlimited, and whether it's several among multiple owners, which can leave one partner liable for the entire balance.

Repaying early

Early repayment on an amortizing term loan cuts interest exactly as it does on any other loan, and it frees monthly cash flow — which improves the coverage ratio a lender examines the next time you borrow.

Two differences from consumer lending. Business term loans are more likely to carry prepayment penalties, and SBA 7(a) loans with terms of 15 years or more carry a declining federal prepayment fee in the early years. Second, prepaying a factor-rate product usually saves nothing at all, because the total repayment is fixed at signing rather than accrued over time — paying it off early simply means paying the same amount sooner.

Editorial note. General information and estimates for a U.S. audience — not financial, legal or tax advice. Rates, terms and lender criteria vary by state and change over time. Verify figures with a lender and consider speaking with a licensed professional before taking on debt.

A factor rate is not an interest rate