ReckonBoxWhat a business loan actually costs
A business loan calculator prices two very different products: a term loan quoted with an interest rate, and a short-term loan or cash advance quoted with a factor rate. They cost money in ways that do not compare directly, and mixing them up is how a business signs for far more than it thinks.
On a $100,000 term loan at 8% over 5 years, the payment is $2,027.64 a month. Add a 3% fee, usually taken from what you receive, and the 8% rate is really a 9.3% APR. Switch to a $50,000 advance at a 1.3 factor rate and you repay $65,000, which the lender calls a 60% APR and which actually costs about 96.6%.
The factor rate that hides an APR
A factor rate is a one-time multiplier on the amount borrowed, so a 1.3 factor means you repay $1.30 for every $1, no matter how fast you pay. Short-term lenders and merchant cash advances quote it because it looks small next to an interest rate. It is not small.
Borrow $50,000 at a 1.3 factor and the cost is fixed at $15,000 the moment you sign. The usual conversion divides that cost by the amount and annualizes it over the term, giving a 60% simple APR on a 6-month payback. That figure is what the industry quotes, and it undersells the truth.
Why the true APR beats the quoted one
The simple APR understates a factor-rate loan, because you repay in installments and the balance falls, so you never have the full advance for the full term. The honest number is the effective APR, the rate that fits the actual payment stream.
On that $50,000 advance repaid over 6 months, the effective APR is about 96.6%, not 60%. Every factor-rate source we checked stops at the simple figure. calculator.net models term-loan fees but has no factor rate at all; NerdWallet pushes the factor rate off to a separate tool. This calculator puts both numbers side by side:
| $50,000 advance at a 1.3 factor rate, 6-month payback | |
|---|---|
| Total you repay | $65,000 |
| Cost of the money | $15,000 |
| Simple APR lenders quote | 60% |
| True effective APR | 96.6% |
The term is as important as the factor
The same factor rate is a completely different annualized cost depending on how fast you repay, because the fixed cost is packed into less or more time. Speed is not your friend here.
A 1.2 factor rate works out to roughly 160% APR over three months, but around 40% over twelve. The cost in dollars never changes, yet the annualized rate more than triples when the term is cut. That is the opposite of an interest-rate loan, where paying faster saves you money, and it is the single most misunderstood thing about short-term business financing.
Where the numbers come from
For a term loan, the payment is the standard amortization of the loan amount at the monthly rate over the term. Fees come out of what you receive, so the real APR is the rate that repays the net proceeds over the same payments, which is what an APR measures. An SBA guaranty fee or origination fee goes in the fees field, since the guaranty amount is set each fiscal year and is cleaner as an input than a hardcoded schedule.
For a factor rate, the total repayment is the amount times the factor, and the cost is the difference. The simple APR is that cost over the amount, annualized by the term. The effective APR solves for the monthly rate that fits equal installments repaying the advance, then annualizes it.
What this does not decide for you
This prices the financing and leaves the decision to you. It does not judge whether the loan suits your cash flow, whether a line of credit beats a term loan, or whether the revenue a loan funds will clear its cost. A merchant cash advance can make sense for a genuine short-term gap and can also bury a business that rolls one into the next.
None of this is advice on whether to borrow. For financing tied to your own books, a CPA or an SBA-approved lender is the right call, and the figures above are the starting point for that conversation.
Frequently asked questions
How much are the payments on a $100,000 business loan? On a $100,000 term loan at 8% over 5 years, the monthly payment is $2,027.64, and total interest is about $21,658. Add a 3% fee of $3,000, usually taken out of what you receive, and the total cost is $24,658, which lifts the real APR from 8% to about 9.3%.
What is a factor rate? A factor rate is a one-time multiplier on the amount borrowed, used on short-term business loans and merchant cash advances instead of an interest rate. A 1.3 factor rate means you repay $1.30 for every $1 borrowed, so a $50,000 advance costs $15,000 and you repay $65,000, no matter how fast you pay it off.
How do I convert a factor rate to an APR? The simple conversion is the cost divided by the amount, annualized over the term: a $50,000 advance at a 1.3 factor over 6 months is a 60% simple APR. That understates the true cost, because you repay in installments and the balance falls, so the real effective APR on that advance is about 96.6%. This tool shows both.
Why is a factor rate so much more expensive than it looks? Because the same factor rate is a wildly different annualized cost depending on how fast you repay. The cost is fixed up front, so repaying it faster packs it into less time and raises the effective APR. A 1.2 factor is roughly 160% APR over 3 months but around 40% over 12 months, which is why the repayment term matters as much as the factor.
Does this calculator handle SBA loan fees? Yes, through the fees field in term mode. An SBA 7(a) loan carries an upfront guaranty fee, and the fee amount is set each fiscal year, so rather than hardcode a schedule this tool lets you enter the guaranty and any origination fee as a percentage. It then folds them into the real APR, so you see the true cost, not just the rate.
What is the difference between the two modes? Term mode prices a conventional amortizing business loan: a rate, a term in years, and fees, giving a monthly payment and a real APR. Factor mode prices a short-term loan or merchant cash advance quoted with a factor rate, giving the total repayment and both the simple and true effective APR. Pick the one that matches how your loan is quoted.