4 Things to Consider When Evaluating a Loan Offer

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Maybe you are looking for a small business loan to purchase new equipment or open a new location. Maybe you’re looking for a loan to use as a financial buffer during a slow season. Whatever the situation, taking out a small business loan is a big decision, 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?

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Here are four things you might look at when evaluating a loan offer:

  1. The total payback amount
    Total payback amount is a dollar value that represents the principal amount of the loan plus all costs (including interest, origination fees, credit reporting fee, application costs, etc.).

    It’s a metric that for most people is a lot easier to understand than APR (annual percentage rate). In fact, a survey by Lendio found that most borrowers prefer to see the total payback amount as opposed to other measures of loan cost.

    Here’s an example of total payback: You receive a loan offer of $1,000 at 10 percent 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 Capital clearly shows the total amount you repay and the total cost of the loan, so you know exactly what you’re 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.

    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 may incur, such as late fees, prepayment penalties, NSF fees, 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 lot 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 a seller is eligible to apply for a loan through Square Capital, our application takes as little as a few clicks. Upon approval, funds are deposited 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 enroll in 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 Capital, 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 has positive reviews from other borrowers. That may mean doing an online search to understand customer satisfaction and lender dependability, or seeing how often borrowers come back for a second loan. (Ninety percent of people given a second loan offer through Square Capital take it.1)

    There should be no doubt in your mind that your lender is trustworthy.


Learn how businesses may become eligible for a loan through Square Capital.


1Represents over 30,000 loans through Square Capital from January 2016 through January 2017.

This communication is for informational purposes only and is not intended as financial or legal advice.

Square Capital, LLC is a wholly owned subsidiary of Square, Inc., d/b/a Square Capital of California, LLC in FL, GA, MT, and NY.All loans are issued by Celtic Bank, a Utah-Chartered Industrial Bank. Member FDIC, located in Salt Lake City,UT. Loans are not issued to borrowers in ND. The individual authorized to act on behalf of the business must be a U.S. citizen or permanent resident and at least 18 years old. Valid U.S. bank account and Social Security number or Individual Taxpayer Identification Number are required. Actual fee depends upon payment card processing history and loan amount. A minimum payment of 1/18th of the initial loan balance is required every 60 days and full loan repayment is required within 18 months. All loans are subject to credit approval.

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