APR

What is APR?

APR is the interest rate plus most lender fees, spread over the life of the loan and stated as a yearly percentage. A loan with a 10% interest rate and a 3% origination fee has an APR above 10%, because the fee is part of what the money costs you.

APR is not the contract rate and it is not a factor rate. Banks and SBA lenders usually show APR. Cash advance and some short term lenders quote a factor rate or a flat fee instead, and the APR behind those numbers is often far higher than it looks. Our guide to APR versus factor rate shows the gap.

How is APR calculated?

APR takes the total cost of the loan, interest plus fees, and converts it to a yearly rate on the money you actually receive.

• You borrow $100,000 at 10% interest over three years.
• The lender charges a 3% origination fee, so you receive $97,000.
• Your monthly payment is about $3,227, based on the full $100,000.
• Because you only received $97,000, the APR works out to roughly 12%, not 10%.

The shorter the loan, the more a fee pushes APR up, because the same fee is spread over fewer months.

What do lenders consider normal?

Typical business loan APRs vary widely by lender type. Bank term loans typically run from the high single digits to the low teens. SBA 7(a) loans are priced off the prime rate plus a capped spread. Online term loans and lines of credit typically run from the low teens to around 60%. Merchant cash advances, once converted to APR, are often well above that.

Your own APR depends mostly on credit, time in business, revenue and whether the loan is secured. See business loan rates explained for a breakdown by product.

What should you watch for?

Watch for offers that do not show an APR at all. A lender who only quotes a factor rate, a weekly payment or a simple interest figure is usually hiding a high annual cost. Ask for the APR in writing, or work it out with our MCA true cost calculator.

Also check whether early payoff saves you interest, since on some short term products the full cost is fixed on day one. Finally, confirm which fees are included: most APRs leave out late fees and draw fees on lines of credit.

Related terms

Compare APR against the factor rate on a cash advance. The origination fee is what pushes it above the contract rate, and the amortization schedule is what it is built on. You will see it most clearly on term loans and lines of credit. You can apply here, or ask your AI assistant to compare offers and apply for you through our MCP server.