Business Loan Rates and What They Really Cost

Interest rate, factor rate, APR and total cost of capital are four different numbers. Here is how to convert between them and which one to decide on.

Four different numbers get called "the rate" in this industry, and they are not interchangeable. Learning to convert between them is the highest-return twenty minutes you will spend on a funding decision.

1. Interest rate

What you pay per year on the outstanding balance. On an amortizing loan the balance falls every month, so total interest is far less than rate × amount × years. This is the only one of the four that behaves the way most people assume.

2. Factor rate

Used on merchant cash advances and some short-term products. It is a multiplier, not a rate. Total payback = amount × factor. There is no compounding, no amortization, and usually no discount for paying early.

3. APR

Annualized cost including most fees, which is what makes it useful for comparing a 6-month product against a 5-year one. A short term inflates APR dramatically even when the dollar cost is modest — a $2,000 fee on a 60-day facility is a huge APR and a small amount of money. Use APR to compare, use dollars to decide.

4. Total cost of capital

Every dollar you repay above what you received. Origination, packaging, ACH, draw, monthly maintenance, and any prepayment penalty. Ask every lender for this one number in dollars. A lender who will not give it to you plainly has told you something important.

The same $50,000, four ways

Fees that hide outside the rate

• Origination / packaging — taken off the top, so you receive less than the stated amount but repay on the full amount.
• Draw fees on a line of credit. Small per draw, expensive across many small draws.
• Monthly maintenance on an undrawn line.
• ACH or payment processing per debit — trivial monthly, meaningful daily.
• Prepayment penalty or fixed payback. On advances, early payoff often saves nothing. Ask directly: "if I pay this off in month three, what do I owe?"

One question that cuts through everything

"If I take this and pay it exactly as agreed, how many dollars will have left my bank account in total?" Then compare that figure across offers. Our calculators will do the arithmetic, including converting a factor rate into an estimated APR.

Program guidelines shown are our lending partners' published minimums as of September 2026 and can change. They are qualification floors, not an offer. Reviewed and maintained by the Goldspur Capital funding desk. This is general information about commercial finance products, not financial, legal or tax advice for your specific situation.