So you’ve scoured the internet for loan options, flipped through offer letters in your mailbox and received dozens of calls from lenders. You’re ready to make a decision on a small business loan—but how do you choose?
We will show you how to use a helpful table—similar to the Schumer Box— that will help you break down your loan options side-by-side so you can make the most well-informed decision for your business.
What is the Schumer Box?
If you receive a consumer lending product—such as a mortgage, auto loan or a credit card—you have probably seen a table that breaks down key metrics like APR and fees. This is a Schumer box. Unfortunately, this table is not common for small business loans, which can make it really hard for you to lay out and compare your loan options. So I’ve created what I call the Grover Box to help you out.
How Does the Grover Box Work?
The Grover Box is a small business loan comparison tool that helps you look at all your options side-by-side. Let’s pretend you get the following four loan quotes from different lenders:
- $25,000 loan. $4,500 loan fee. $50 monthly servicing fee. No interest.
- $25,000 loan. 30% APR.
- $25,000 loan. 25% interest rate. 3.9% origination fee.
- $25,000 loan. 20% factor rate.
Which one is the best deal?
Let’s use the Grover box to analyze these loan options. If you need any of the key terms below defined, click here for a glossary of business loan terms. [Note: Everything in the table below should be provided to you by your lender or posted on their website—you have a right as a borrower to obtain this information]
The Grover Box
*Assuming simple compounding and monthly payments
How to Compare Your Options
Know your APR
When you’re just looking at APR, you usually go with the loan that has the lowest rate. The Grover Box takes all the factors of your loan options into consideration, including fees, interest rate and term. When you put all the factors together, the annualized cost of the loan can actually be greater than you originally thought. If you’re not sure what your true APR is, use an online APR calculator.
Be wary of short-term loans without interest rates
Even though option 4 and option 1 don’t have interest rates, they are actually the most expensive options. Option 4 has an APR of 81.3%—but you might not know that immediately since it’s a 6 month loan term. Low interest rates with shorter terms often mean you end up paying more through fees.
Know all the loan terms before signing the contract
Option 3 with an interest rate of 25% is actually more expensive than option 2 with an interest rate of 30%. Here’s why: Option 3 has a 3.95% fee. A common mistake is to add together your interest rate and fees to calculate the rate (e.g. here someone might add the 25% interest rate with the 3.95% fee to get an interest rate of 28.95%). However, fees are actually based of the original loan amounts, so you could actually end up paying 33% APR on this loan. Make sure you also check with your lender about whether or not there’s a prepayment penalty if you pay off your loan early. Prepayment penalties can drive up the overall cost of the loan.
I would encourage you to do your homework on your loan options and use the Grover Box. To download a template of the Grover Box for your own use, click here. Spending a few minutes using this table to compare your options can save you both time and money down the road. Additonally, we've created an eBook to give you an overview of what small business financing looks like. Download it now.