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Financing Your Business: What the Numbers Really Mean
Business financing looks like a personal loan on the surface — principal, rate, term, payment — but the details that actually decide whether a loan is a good deal live in the fine print: origination fees, use-of-funds restrictions, and how quickly your business can put the capital to work. This calculator surfaces the number that matters most for cash-flow planning: what you actually walk away with after fees.
Origination Fees Cut Both Ways
Most business loans charge an origination fee (commonly 1-6% of the loan amount) deducted from your disbursement — but you still repay the full face amount. That means your effective cost of capital is higher than the stated interest rate alone suggests.
SBA Loans
SBA 7(a) and 504 loans are partially government-guaranteed, which typically means lower rates and longer terms than conventional bank loans — but also more paperwork, longer approval times, and their own guarantee fees layered on top of origination costs.
Equipment vs. Working Capital
Equipment loans are usually secured by the asset itself, which tends to mean better rates. Working-capital and revenue-based financing carry higher rates because they're unsecured and tied to a business's cash flow rather than collateral.
APR vs. Origination Fee
Comparing two offers by interest rate alone can be misleading if their origination fees differ. A lower rate with a high origination fee can cost more upfront than a slightly higher rate with a small or no fee — always compare net proceeds and total cost, not just APR.
Worked Example
Suppose your business borrows $100,000 at a 9% annual rate for 60 months, with a 3% origination fee:
- Origination fee: $3,000.00 (deducted up front).
- Net proceeds received: $97,000.00 — not $100,000.
- Monthly payment: approximately $2,075.84 (based on the full $100,000 face amount).
- Total interest over the term: approximately $24,550.08.
Face Amount vs. Net Proceeds
- Loan Face Amount: $100,000.00
- Origination Fee: $3,000.00
- What You Actually Receive: $97,000.00
Sizing the Loan to the Fee
Because the origination fee comes off the top, some businesses deliberately borrow slightly more than they need so the net proceeds still cover the intended project — but that also means paying interest on money you never used for its intended purpose. Model both the face amount and the net proceeds before deciding how much to request.
A note on rates: Typical business loan rates vary widely by lender type and collateral — bank term loans often run from the high single digits into the low double digits, while alternative/online lenders and unsecured working-capital products can run substantially higher. Shop multiple lender types before committing.
Key Takeaways
- Net Proceeds Is What Counts: Budget against what you actually receive after the origination fee, not the loan's face amount.
- You Repay the Full Face Amount: Interest and payments are calculated on the original loan amount, even though the fee reduces what you receive.
- Consider SBA Options: Government-guaranteed loans often trade a longer approval process for meaningfully lower rates and longer terms.
- Compare Total Cost, Not Just Rate: Weigh origination fees alongside APR when comparing lenders — the lowest rate isn't always the cheapest loan.