Quick answer: The interest rate is the yearly cost of borrowing before fees. APR adds fees and shows the yearly cost of the whole loan, which makes offers easier to compare. A factor rate (like 1.25) is multiplied by the amount borrowed to get a fixed total payback and isn’t an annual rate at all. The most reliable way to compare offers is the total amount you’ll repay and how quickly you’ll repay it.
The three ways lenders quote cost
| Term | What it is | Example |
|---|---|---|
| Interest rate | Annual cost of borrowing, not including most fees | 10% per year |
| APR | Annual cost including interest and many fees | 12% APR with fees included |
| Factor rate | Multiplier for total payback; not annualized | $50,000 × 1.25 = $62,500 total |
Why factor rates can be misleading
A factor rate of 1.25 looks like “25%,” but if you repay it over 6 months, the equivalent annual cost is much higher than 25%, because you’re paying the full cost in half a year and paying down the balance as you go. Always convert to an APR or compare total payback and term length side by side.
Fees to include in your comparison
- Origination or underwriting fees
- Closing, documentation or broker fees
- Draw fees or maintenance fees on lines of credit
- Late payment and returned payment fees
- Prepayment penalties
A simple comparison checklist
- Amount you receive after fees
- Total amount you’ll repay
- Term length
- Payment amount and frequency (daily, weekly, monthly)
- APR or estimated APR
- Prepayment terms
Cost disclosures
Several states, including New York and California, require many commercial financing providers to disclose an estimated APR and total cost before you sign. At Brookestone Funding, every offer lists the rate, total repayment and any required disclosures up front. Rates start at 8% for qualified businesses.
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Frequently Asked Questions
What is the difference between APR and interest rate?
The interest rate is the annual cost of borrowing before most fees. APR includes interest plus many fees, so it better reflects the true yearly cost.
What is a factor rate?
A multiplier used to calculate a fixed total payback, such as 1.25 times the amount advanced. It is not an annual rate.
How do I compare two business loan offers?
Compare the amount you receive, total repayment, term length, payment frequency, APR and prepayment terms side by side.
Do lenders have to disclose APR on business loans?
Not everywhere. Some states, such as New York and California, require estimated APR disclosures on many commercial financing offers.
Need financing? Brookestone Funding offers business term loans, lines of credit and SBA loans from $10,000 to $2,000,000, with same-day funding available for qualified businesses. We’re rated 4.5 on Trustpilot by more than 240 customers. Apply in minutes, see our business loan options, or call 212-258-0602.
