What rate are you actually paying?
Business loan quotes are often given as a total payback figure, not an interest rate. Enter the four numbers from your quote and see the effective annual rate behind it, including the bite the establishment fee takes before the money even lands.
From quote to real rate.
Works for term loans and any quote given as "borrow X, pay back Y". All figures stay on this page; nothing is saved or sent to a lender.
The quoted number understates the cost. Every time.
Say you borrow $100,000 over 12 months and pay back $118,000. That reads like 18%. But you repay the balance every week, so on average you are only using about half the money, and if $3,000 of fees came out on day one you never had the full amount to begin with. Priced on the cash you actually held, the real rate is roughly double the quoted one. That is the number this calculator shows you, and the number to use when comparing two quotes.
Asked about rates and quotes specifically.
What is a factor rate?
A factor rate is the multiplier some lenders use instead of an interest rate: borrow $100,000 at a factor rate of 1.18 and you repay $118,000. It looks simple, but it hides the real cost, because it ignores how quickly you repay and any fees taken out up front.
Why is my effective rate higher than the rate I was quoted?
Two reasons. First, you repay the balance down over the term but the cost is fixed at the start, so on average you are borrowing far less than the full amount. Second, establishment fees are deducted before the funds reach you, so you pay interest on money you never received. The effective rate accounts for both.
What figures do I need from my quote?
Four numbers: the loan amount on the contract, the establishment fee, the total payback (every repayment added together), and the term. Your quote or contract summary should show all four; if it does not, ask the lender or broker for them in writing.
Does the establishment fee really change the rate that much?
Yes, especially on short terms. A 3% fee on a 6 month loan is roughly equivalent to an extra 6% per year on its own, before the interest cost. That is why two quotes with the same repayments can have very different real costs.
Is a high effective rate always a bad deal?
Not necessarily. Short-term unsecured finance costs more than secured bank debt, and it can still make commercial sense when the funding earns more than it costs or protects the business from a bigger loss. The point of this calculator is that you should make that call knowing the real number, not the quoted one.
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