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Guide

How Business Loan Rates Actually Work

Lenders quote cost in different ways — interest rate, APR, and factor rate — and they aren't comparable on their face. Understanding each lets you see the true cost and avoid offers that look cheaper than they are.

ET By Erica Townsend Updated 3 Min Read

The single most confusing part of shopping for a business loan is the price — because lenders don’t all quote it the same way. Three different numbers get thrown around, and they’re not directly comparable. Understanding each is the difference between a smart decision and an expensive surprise.

We deliberately don’t publish specific rates: they change constantly and depend on your business and the lender. This guide explains how pricing works so you can read any offer clearly — then confirm the current numbers with the provider.

Interest rate vs. APR

  • The interest rate is the cost of borrowing the principal, expressed as a percentage.
  • The APR (annual percentage rate) folds in certain fees on top of interest, so it reflects the fuller annual cost.

Two loans can share an interest rate but have very different APRs once origination and other fees are included. APR is the better number for comparing offers — always ask for it.

Fixed vs. variable

  • A fixed rate stays the same for the life of the loan — predictable payments.
  • A variable rate moves with a benchmark, so payments can rise or fall over time.

Neither is automatically better; it depends on your tolerance for payment changes and where rates are heading.

Factor rates (and why they’re tricky)

Some short-term lenders and merchant cash advances price with a factor rate — a multiplier like 1.3 — instead of an interest rate. You multiply it by the amount advanced to get the total you repay.

Convert factor rates before you compare

A factor rate ignores time and fees, so a “1.3” can look cheaper than it is. Because the repayment is fixed and the term is short, the effective APR is often dramatically higher than it appears. Ask the provider for the APR-equivalent before comparing a factor-rate offer to a normal loan.

What drives your rate

Lenders price for risk, so your rate generally reflects:

  • Credit — personal and business.
  • Time in business and revenue — more stability usually means a lower rate.
  • The product and term — short-term and unsecured financing typically costs more than secured or SBA options.
  • The wider rate environment — benchmark rates move, and your offer moves with them.

This is also why SBA and bank loans tend to cost less than fast online financing: lower risk and more paperwork in exchange for a better price.

How to compare offers honestly

  1. Ask for the APR, not just the interest or factor rate.
  2. Add up all fees — origination, servicing, prepayment penalties.
  3. Compare the total cost over the full term, not the monthly payment alone.
  4. Convert factor rates to an APR-equivalent.

Our guide on how to qualify covers what lenders look at — much of which also shapes your rate.

The bottom line

Don’t compare a factor rate to an interest rate, and don’t compare interest rates without the fees. Ask every lender for the APR and the total cost, convert anything quoted as a factor rate, and confirm current numbers directly — they change too often to take from anyone’s blog, including ours.

Frequently asked questions

What's the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. APR (annual percentage rate) folds in certain fees as well, so it reflects the fuller yearly cost. Two loans with the same interest rate can have very different APRs once fees are included — which is why APR is the better number for comparing offers.
What is a factor rate?
A factor rate is a multiplier (like 1.3) used by some short-term lenders and merchant cash advances instead of an interest rate. You multiply it by the amount borrowed to get the total repayment. Because it ignores time and fees, a factor rate can hide a very high effective cost — convert it to an APR-equivalent before comparing.
Why doesn't this site list current rates?
Because business loan rates change constantly and depend on your business, the lender, and the wider rate environment. Any number we printed would be out of date quickly and could mislead you. We explain how pricing works and point you to the provider for current figures.

Sources

Loan programs, rates, and eligibility change. We re-check sources on the “updated” date, but always confirm current terms directly with a provider.

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