As a small business owner, when you’re looking to partner with another business or bring in a partner of the company, you’re looking for trustworthy, business savvy people. The same should be sought after in your small business lenders. We all know that getting an SBA business loan, traditional bank loan or VA business loan can be challenging if you don’t have enough revenue or time. That’s the reason why online small business lenders exist.
We’d like to help you compare your business loan offers from different small business lenders. We’ve provided business loan calculators to help you see the true cost of capital of an OnDeck loan offer and for Kabbage loan offers. Today, we’ll help you understand how a Swift Capital loan offer works.
Swift Capital Loan Offers
As we’ve stressed in the past, the Annual Percentage Rate (APR) is the most important number you’ll need to understand when analyzing the true cost of capital. When receiving a Swift Capital business funding offer, you’ll see percentages described as the “price,” but not the total cost in APR. Use the standard calculators below to help you calculate the true cost of funding with the APR.
Business Loan Calculators for APR
In the green box enter:
- your loan amount
- the originations fee
- your weekly payment amount
- the number of payments
In the yellow box, you'll see:
- the cash you will get net of fees
- total payback amount
- total cost of financing
- the APR of the loan
Reading Between the Lines: APR vs Price
From first glance, a Swift Capital business funding offer may seem confusing. Check out an example from their website:
You’ll see that this pizza shop received $35,000 for a 52-week term. They’ll pay weekly with a price of 17.90%. What does “price” mean? Is it the APR or interest rate of the loan?
When we use the calculator above to figure out the APR, we see that the APR is actually 39%.
The example does not state 17.90% as the APR. Instead they call it a “price.” But why don’t they state the APR?
Merchant Cash Advances Don’t State APR
The example given is structured like a merchant cash advance. A merchant cash advance is given in an upfront sum of cash in exchange for a slice of your future sales. Or it can be repaid by remitting fixed daily or weekly debits from your bank account. In Swift Capital’s example, it’s structured as an upfront sum of cash that’s repaid with fixed weekly payments.
Because it’s structured like a merchant cash advance and not a typical business loan or line of credit, they don’t have to state the APR and can avoid the regulatory caps on APR and interest. Each state has different regulations on interest rates and some may have APR caps on consumer and commercial loans.
Instead of Prepayment Penalties or Discounts, Full Repayment is Required
Since merchant cash advances are not considered a loan, a borrower cannot receive a discount or penalty when prepaying the loan early. In fact, upon signing a contract, the borrower is responsible to pay the full repayment amount, regardless of when they decide to pay it.
In the example above, if the pizza shop wanted to pay off the $35,000 the day after they received funding, they still have to pay the total payment amount of $6,265.
Again, a merchant cash advance doesn’t allow for any prepayment discounts. Some companies may still charge you a percentage of the total payment amount. At StreetShares we don’t charge a prepayment penalty and we give a 100% discount if you want to pay off your loan early.
Speak to a Loan Specialist
Our team strives to provide small business owners with the most transparent experience when deciding on a loan offer. StreetShares will disclose every fee and interest rate on your loan offer and shows the APR. We also want to help you decode other loan offers so you can make your own comparison and choose what's best for your business. Contact us with questions on your loan offers or apply for a business loan or line of credit today to see how we compare to your current offer.