Other Factors Impacting Your Loan Payments
Lenders look at a number of factors when they determine the terms of your loan. These factors can impact the payments you make every month. It’s a good idea to calculate your monthly payment ahead of time, in order to be prepared.
The Size of Your Loan
Business loans can come in all different amounts. They can be as low as $13,000 or as high as $1 million or more. If you apply for a loan through the Small Business Administration, you may qualify for up to $5 million in loans. Loans specifically designed for equipment could be from $500,000 to $1 million.
In general, the larger your loan is, the larger your monthly payments will be.
Your Interest rate
Loans come with various kinds of interest rates. Some of the more frequent kinds of interest used on business loans are:
- Annual percentage rate (APR): This is a compounding annual interest rate. It typically includes some built-in fees like closing costs and loan origination fees.
- Annual interest rate (AIR): Like the APR, AIR is compounding annual interest. However, it does not include any loan fees.
- Factor rate: This is a figure that indicates the overall cost of financing, once it’s multiplied by the original loan amount.
Take the time to understand your interest rate before you take out a business loan. It’s important to know whether your interest rate is variable or fixed. You can also use an amortization calculator to figure out how long it would take to pay off your loan, taking into account your interest rate and your monthly payment plan.
Applicable Business Loan Fee
Most business loans come with fees. If you have an APR interest rate, your fees are already wrapped up in your rate. But if you have a different kind of credit, you may still pay fees at the start or end of your loan term.
Here are some of the more common fees:
- Origination fee: This is typically charged at the outset of the loan. It covers the costs of originating, or processing and approving, your loan application.
- Service or processing fees: These cover all the services your lender provides, like managing your account and issuing bills.
- Prepayment penalty: In some cases, you’ll face a prepayment penalty if you pay off your loan ahead of schedule.
- Late payment fee: Making your payment later than the deadline could result in a late payment fee.
Lenders can impose penalties in addition to these fees. It’s a good idea to check whether your fees could change your monthly payment plans.
Your “term” is the amount of time you have to pay off the full balance of your loan. Your term could be as short as a few months, or it could be as long as a few years.
SBA loans often have long terms, sometimes as long as 10 to 25 years. Traditional bank loans may be as long as 10 years.
Online lenders often offer shorter terms, sometimes as short as three months. Online lenders also usually offer higher interest rates, which can mean that you’ll pay more every month.