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Your business likely needs a loan for expansion, inventory, cash flow, or equipment. So it may be a smart decision to get a business loan but there may be some factors preventing you to do so.

Getting a Business Loan

You may be asked to supply a business license, copies of your business bank account statements, or even documentation from your accountant.

The process can be a bit nerve-wracking as you won't know what the result is going to be, but rest assured that your business loan officer genuinely wants to help see this through.

What can you do to better your chances of getting approved for a business loan? You should educate yourself on interest rates, loan origination fees, factor rates, and other loan-related terms before applying for a business loan.

What is Calculated when Business Repay Loans?

All loan fees and rates can be calculated with a simple mathematical calculation: You take the total amount that was loaned to your business, then you multiple it by the interest rate, and then divide that up by the total amount of payments due.

Usually, you can get within a few cents of the actual amount that will be due. Things may change if you need to defer payments or unexpectedly get behind, but even these things can be worked out if you communicate with your business loan provider. Another critical part of the total loan fee calculation equation is the part where factor rates come in. You may be wondering what are factor rates?

What are Factor Rates and Why Do They Matter?

The major difference between factor rates and interest rates is that they are applied to the principal loan amount differently.

For instance, if you take out a business loan with a 7 percent interest rate, the interest will continue to be compounded as you pay the loan down. This means that the total amount due will continue to fluctuate as time goes along.

With factor rates, the rate gets applied only once at the very beginning of the loan. If you go by the factor rate alone, you will have a consistent and accurate record of the amount due on your business loan.

Getting the Best Terms on a Business Loan  

No matter what kind of business loan you get, the amount that you repay is going to differ from the total sum dispersed.

After all, lenders are in the business to make money. Besides having a good business credit rating as well as having equipment or real estate that you can leverage as collateral, it is critical that your company understands the terms of your loan.

Know how much interest you will pay on the life of a business loan and learn if there are any pre-payment penalties. Also know that fully understanding how factor rates work will aid you in calculating all of your business's expenses. 

Business owners have a lot to keep up with. They need to stay on top of payroll, ensure that all suppliers get paid in a timely manner, and work with their accounts to stay on top of their finances.

Using factor rates can help them to know the precise amount of money owed on business loans when compared to interest rates.

Find out what the factor rate is on your business loan so you can keep excellent track of all accounts payable.

If your business is new then you likely won't qualify for a small business loan, however you can look into personal loan options.

TopSavings Staff

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