# What to Consider When Evaluating a Loan Offer

Maybe you’re looking for a small business loan to buy new equipment or open a new location. Maybe you’re looking for a loan to boost your cash flow during a slow season. Whatever the situation, taking out a small business loan is a big decision and one you shouldn’t take lightly.

You’ve probably been researching business loan options. You might even have an offer or two in front of you. But how do you know whether or not a business loan offer is right for you? Here are four things to consider when evaluating a loan offer.

## 1. The total payback amount

Total payback amount is a dollar value that represents the contracted amount due to be repaid. This includes principal, costs and any fees. It’s a metric that for most people is a lot easier to understand than APR (annual percentage rate).

Here’s an example of total payback: You receive a loan offer of \$1,000 at 10% annual interest over three years, with \$150 in financing fees. With those terms, your total payback amount is \$1,335.86 for \$1,000 borrowed, if you pay it over the three-year term through monthly payments.

Knowing the total payback amount allows you to determine whether the cost of a loan really fits your business’s budget. Square Loans clearly shows the total amount you repay and the total cost of the loan, so you know exactly what you’d be paying before you apply.

You might be wondering what the difference is between the total payback amount and APR.

APR – or annual percentage rate – represents the annual cost for borrowing money averaged over the full term of the loan. APR includes interest charges and any other financing fees expressed as a percentage, which can be more difficult to understand. If you use the same three-year loan example from above (\$1,000 loan at 10 percent annual interest for three years, with \$150 in financing fees), the APR is 19.9 percent.

Assessing the total payback and Annual Percentage Rate (example only)
Total loan offer \$1000
Annual interest 10%
Loan term Three years
Fees \$150
Total payback = \$1335.86
APR = 19.9%

APR can be a helpful metric, but judging different loan offers solely on APR doesn’t always give you a fair comparison. You also want to read carefully what additional fees you could incur, such as late fees, prepayment penalties and penalty interest, that can further increase your loan cost but are typically left out of the APR disclosure.

This is why it’s important to evaluate the total payback amount – including all costs in absolute dollars – rather than just the quoted rate, as this is what ultimately affects your budget.

## 2. Speed and convenience of application and funding

Applying for a business loan can take a lot of time. You may have to fill out a lot of paperwork and provide a number of supporting documents. You may even need to use an employee’s time, in addition to your own, to complete an application. That’s extra time and money you may not have.

Before applying for a loan, determine how much time you have to set aside for the process and whether you need the funds by a certain date. How quickly you can apply and the time it takes to receive the funds may rule out certain lenders.

If you’re eligible to apply for a loan through Square Loans, you’ll receive an email or notification in your Dashboard. From there, if you choose to go ahead, our application takes as little as a few clicks. Once approved, funds are transferred into a bank account as soon as the next business day.

## 3. Ease of repayment

How easy it is to pay back your loan should be top of mind when evaluating offers. Operationally, you should figure out if you have to set up a special process for making payments or if you can sign up for auto payments. You should also know whether there are penalties for paying early or late.

Make sure that you dive into how required payments are calculated. With a flexible loan through Square Loans, for instance, repayment is based on a fixed percentage of your card sales. That means you pay more when sales are high and less when sales are low.

## 4. Reputation and dependability of the lender

Before you do business with any lender, you should do your research. Make sure you’ve heard of the lender before and that it can be vouched for in online reviews or testimonials from other businesses. That may mean doing some more research to understand customer satisfaction and lender dependability, or seeing how often borrowers come back for a second loan. There should be no doubt in your mind that your lender is trustworthy.