How do interest rates, terms, and fees impact the true cost of Business Lending

To properly assess the true costs of lent capital, you need to see the bigger financial picture, and that picture goes well beyond advertised rates. Rates - those alluring interest rates - are the flasher points of the business lending calculations, but only part of the overall cost of borrowing.

Interest Rate: The annualized percentage, or APR, is your starting point for understanding lender-related costs, but remember, "promotional" or "low" introductory terms. Yes, borrowing at 6% is attractive, just remember the variable nature of lender product and that you can potentially double the cost of your borrowing as maturity approaches.

Term: The shorter the loan term, the greater your monthly payments, but fewer payments and lesser interest paid. For example, borrowing in 3 years $100,000 at 8%, costs $21,600 in interest vs. $46,600 interest for 7 years. Shorter loan terms and greater cashflows do mean one has to contend with overall affordability and total cost of interest.

By the time you add in the hidden fees: origination fees (1%-6% of loan amount), processing fees, appraisals, and prepayment penalties can add significantly to your borrowing costs. Let's use a $50,000 loan and 3%, origination fee as an example., right off the bat the borrower's costs is already, $1,500 (and that doesn't include) interest yet.

Calculate Full Costs: Smart borrowers calculate the Annual Percentage Rate (APR) to include fees, and they also will look at total repayments rather than just interest, when making a decision on a loan.