The rate on a Mount Pleasant, MI business loan is set by the funding partner from the business's revenue, time in business, credit, collateral and the term. To compare two offers, convert both to total dollar cost.
Saltmead Funding Group in Mount Pleasant, Michigan explains what drives a business loan rate and how to compare two offers in dollars, with an invented pair of offers worked out.
What moves the rate on a business loan offer
A business loan rate moves with the partner's view of risk and with the market. Revenue in the deposits, time in business, the owner's credit, existing debt, collateral and the term all feed it. A secured loan can carry a lower rate than an unsecured one; a longer term can carry a different rate from a shorter one.
Rates can be fixed for the term or variable, tied to an index such as the prime rate. Ask which, and how often a variable rate can change. This site quotes no typical rates; the offer is the only source.
Two offers for the same amount can differ because the partners read the business differently: one weighs collateral heavily, another weighs deposits. Sending each the same records lets the offers line up side by side.
Fees, term length and payment frequency
Fees can change the cost as much as the rate: origination fees, closing fees, annual fees on lines, and prepayment penalties. Term length sets the payment and the total interest: a longer term lowers the payment and raises the total. Payment frequency matters too: daily or weekly debits take cash out more often than a monthly payment.
Ask each offer for the annual percentage rate if it is stated, the total of all payments and a list of every fee.
Some offers quote a monthly rate or a fee per draw instead of an annual rate. Convert each to the total dollars paid over the term so the comparison is on the same footing.
Comparing an interest rate with a factor rate
An interest rate applies to a declining balance over time; a factor rate applies once to an advance and sets a fixed total. A factor rate is used for merchant cash advances, which are not loans, and for some short-term financing. A 1.25 factor rate on $20,000 means $25,000 to remit, whether it is collected over four months or eight (illustration only, invented figures).
To compare, convert both to dollars: the advance's total cost and the loan's total interest and fees. See the merchant cash advance page.
A lender quoting an annual percentage rate folds some fees into one figure, while a lender quoting a simple interest rate may list fees separately. Ask both for the same breakdown before comparing, so a fee left out of one offer does not make it look like the lower-cost choice.
A side-by-side worksheet for two offers
| Line | Offer A | Offer B |
|---|---|---|
| Amount | ||
| Rate or factor rate | ||
| Term | ||
| Payment and frequency | ||
| Fees | ||
| Total of payments | ||
| Collateral and guarantees | ||
| Prepayment terms |
Fill both columns from the written offers, then compare the total of payments plus fees.
Add a row for anything the offer requires beyond payments: a deposit account at the lender, insurance naming the lender, or annual financial statements. Those requirements cost time or money too.
Two invented offers for an Isabella County, MI retailer, compared in dollars
Illustration only, invented figures: an Isabella County, MI retailer has two offers for $50,000. Offer A: an annual rate of 11% over 36 months with a $1,500 fee, about $1,637 a month and $10,430 in interest and fees. Offer B: an annual rate of 13% over 24 months with a $500 fee, about $2,377 a month and $7,550 in interest and fees.
By our arithmetic, Offer B costs $2,880 less in total but carries a payment $740 more a month. The retailer chooses based on which cost and which payment its cash flow carries. Retailers with paid staff in Isabella County, MI numbered 221 in 2023 (County Business Patterns).
Run the comparison for the slowest month too. If Offer B's higher payment would leave the account short in a slow month, its lower total cost may not be worth the strain; a longer term with a higher total can still be the safer fit.
Questions to send back before signing either offer
- Add every payment and every fee: what is the grand total?
- Is the rate fixed or variable, and how can it change?
- What collateral and guarantees are required?
- Is there a prepayment penalty?
- How are payments collected, and how often?
- What happens if a payment is late?
See the funding types page, the term loans page, credit lines and equipment financing.
Keep the written offers, not notes from a call, as the source for the worksheet. If an offer changes after you ask a question, fill a new column rather than editing the old one.
By Saltmead Funding Group · Updated
