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Costs of Business Borrowing: Simple Interest, APR, Factor Rate & Amortization (Explained)



A successful small business needs constant investments. You should invest your resources, time as well as cash to turn your startup into a prosperous company.

However, not every business owner has enough financial savings to support their small venture. Thus, taking out a small business loan can be beneficial and bring that much needed monetary support to stay afloat and develop the venture further.

Yet, there are certain costs of borrowing you need to be aware of and take into account. Read on to learn more about the difference between the simple interest, the APR, the factor rate as well as amortization before you apply for a loan.

Simple Interest Rate

The simple interest rate is the initial interest that the creditor charges you together with the lump sum you obtain as a loan. This rate is often the extra cash that the creditors earn off such small business loans. This number is usually fixed over the whole repayment term. The formula on how to calculate the simple interest is quite easy:

Simple interest = Loan principal x Interest rate x Repayment Term (Years)

For instance, if a borrower takes out a 12% simple interest rate on a $5,000, six-month loan, they will need to pay off: 5,000 x 0.12 x 0.5 = $300.

So, this is the extra sum that will have to be repaid over a period of six months to the lender who gave you the loan.


Sometimes you may come across a loan offer that doesn’t have an interest rate in it.

Don’t be tempted to sign for it immediately, as it just means that this loan includes an APR instead.

What is an APR and how is it different from the simple interest rate?

Unlike the simple interest that has only the amount lenders want to make out of this loan, an APR presents an initial rate together with extra loan fees and charges. Certain business loans typically charge an APR instead of a simple interest or a factor rate. They are business lines of credit, administration loans and/or credit cards for business usage.

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Usually, an APR can consist of several additional charges that are already included in the total sum. Hence, this figure is often higher than the simple interest rate. It can include:

  • the application fee
  • the origination fee
  • the guarantee fee
  • the service fee
  • the closing fee
  • etc.

Depending on the creditor, there may be more or less additional charges that are incorporated in this figure. So, pay attention to the loan offer and its conditions and compare the rates in several lending institutions before you decide which offer is the most suitable for you.

Factors That Define the Simple Interest or APR

One of the most essential things you should keep in mind before applying for any type of business loan is that creditors and finance-related service providers want to eliminate risks and make everything possible to ensure borrowers will be able to repay the debt. Thus, they are more likely to provide lower rates for consumers with certain factors that are important to them.

There are several factors that will define the amount of simple interest a borrower will be charged.

  • Personal credit score. When you are launching a startup and don’t have your business credit history, your own credit score will serve as a measure of your credibility and reliability in the eyes of the creditors. Therefore, it’s significant to try and improve your score before you submit the business loan request as it will boost your chances of getting approved with the lowest APR or simple interest.
  • Startup vs. established venture. Lenders are more eager to provide lending solutions to established companies rather than startups. The reason for that is that the longer your enterprise is open the more chances you have to get approved as lenders will consider you a more stable borrower. It can be harder to obtain a loan with a decent interest rate for a startup owner but your personal credit history can help here a lot.
  • Industry. The field in which you start a business is also essential as creditors may offer higher interest rates and worse terms for risky ventures and industries that are less stable.
  • Your creditor. Small business loans from the credit unions or local banks tend to come with smaller rates and better repayment terms but they usually have more requirements for consumers who can qualify. On the flip side, borrowers who have been rejected by traditional lending institutions can turn to alternative lenders and still receive financial help even with bad credit.
  • Current debt. The last but not least factor is the amount of existing debt a borrower currently has. If you have no or little existing debt, you can qualify for better loan terms being considered as a low-risk borrower.

Factor Rate

Factor rate is another form of the business borrowing cost that may come together with a loan. It differs from the above-mentioned costs and is usually used only for merchant cash advances. The factor rate number may vary from creditor to creditor and also can be affected by the repayment schedule and the amount you want to obtain. Consumers want to find the lowest factor rate for merchant cash advances as it also means having the lowest total cost of the loan.

How to calculate the factor rate? It’s simple. You need to multiply the loan lump sum by the factor rate.

For example, when a consumer takes $5,000 for a year with a factor rate of 1.2, the total cost of the loan will be $5,000 x 1.2 = $6,000.

Depending on the business owner’s needs and the type of financing they require, getting a factor rate can be more widespread for the merchant cash advance only.

cost of business borrowing

TheAngryTeddy / Pixabay


Amortizing loans are typically used for long-term borrowing when you need to obtain extra funds for several years. This type of borrowing includes an amortization schedule so that the payments may be made weekly, biweekly, or monthly. The total lump sum will be divided into equal regular payments according to the repayment scheme of your choice.

The best part here is that the initial interest rate you get when you sign the contract will decrease through the lifetime of the loan. It happens because the interest payments should be made on the existing loan balance. Thus, when the loan balance reduces, so does your interest rate. This is the main difference between amortizing loans and loans with simple interest.

All in all, every borrower should pay attention to various lending options and select the one that will best suit their current business needs.

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Virginia Used Car Dealer Offers Local Drivers Reliable Pre-Owned Vehicles and Affordable Prices



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Used Cars Under $10,000 in Virginia

Karen Radley Volkswagen is offering local drivers a variety of used vehicles to choose from that are priced under $10,000, including capable SUV’s, versatile crossovers, fuel-efficient sedans and sporty coupes.

There are many ways for people to save money when shopping for the things they need and can’t live without. For many people, a vehicle that can offer them the reliability they need is incredibly important and something they require every day. Drivers in Virginia that are searching for affordable used cars under $10,000 now have a dealership they can turn to that will help them get behind the wheel of a reliable vehicle they can afford. Karen Radley Volkswagen is offering local drivers a variety of used vehicles to choose from that are priced under $10,000, including capable SUV’s, versatile crossovers, fuel-efficient sedans and sporty coupes.

With used car specials that offer affordable pricing and a large inventory of pre-owned vehicles that can be purchased for under $10,000, drivers will be able to find the vehicle they’ve always wanted to drive at a price that fits their budget. Karen Radley Volkswagen also helps make buying a reliable and budget-friendly used car easy by offering used car loans to drivers regardless of their credit score. Good or bad credit car loans are fast and easy to obtain and apply for when shopping at Karen Radley Volkswagen.

To learn more about how to get behind the wheel of an affordable used car in Virginia, or to view the current inventory of used cars under $10,000, drivers can visit the local dealership’s website by going to Questions can be directed towards the sales staff by calling 833-243-5895. Shoppers may also see all the used cars at Karen Radley Volkswagen by driving to 14700 Jefferson Davis Highway.

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Legislation to Combat Unfair Auto Insurance Rates Clears Committee



Legislation to Combat Unfair Auto Insurance Rates Clears Committee


Trenton – In response to high automobile insurance assessments, the Senate Commerce Committee passed legislation sponsored by Senators Nia Gill, M. Teresa Ruiz, Nilsa Cruz-Perez, and Nellie Pou, which would prohibit the use of education, occupation, homeownership status, marital status, or credit score in certain automobile insurance determinations.


“The use of factors such as employment status and credit score in calculating insurance premiums carries a severe economic consequence for working-class families. A person’s income or education has no bearing on driver safety or risk and only serves to reinforce existing inequalities,” said Senator Gill (D-Essex/Passaic). “The pandemic has given new importance to how we determine eligibility. Millions of New Jerseyans are experiencing economic hardship; this will inevitably impact their credit scores, occupation, and employment status. This bill is critical to ensure people are not subject to increased premiums based on metrics that have nothing to do with driving, and it will ensure drivers are not subject to increased premiums based on unforeseeable consequences of the pandemic.”


The bill, S-111, would prohibit automobile insurers from assigning an insured or prospective insured person to a rating tier based on educational level, credit score, marital status, homeownership status, or employment, trade, business, occupation or profession.


“Newark has some of the highest car insurance rates in the country. Under our current laws car insurance companies are preying on New Jersey’s most vulnerable, charging low income customers significantly more regardless of their driving history. Every sponsor has done tremendous legwork to bring an end to this harmful practice. I am proud to have been a driving force in the final push to move this important legislation and to ensure it included prohibiting the use of credit scores,” said Senator Ruiz (D-Essex). “Insurers should be basing their rates on the likelihood that someone will be in an accident, not his or her ability to pay for those damages out of pocket.”


“It is absurd that someone with a bad credit score pays more for car insurance than someone who has been convicted of a DUI,” said Senator Cruz-Perez (D-Camden/Gloucester). “We cannot allow insurers to continue basing rates on credit history or socioeconomic status rather than someone’s driving record.”


“We must stop penalizing people for being poor,” said Senator Pou (D-Bergen/Passaic). “This legislation will hold insurance companies accountable and help to ensure that our most vulnerable citizens are given fair pricing for policies that are a requirement to drive.”


The bill would take effect 90 days after enactment.

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Reasons You Can Be Denied for a Bad Credit Auto Loan



Everyone’s situation varies, but there are some circumstances that bad credit auto lenders simply don’t accept. To give you an idea of what to expect when you apply for a car loan, here’s what subprime lenders tend to require and what situations they don’t accept when determining your eligibility for auto financing.

Job Situations and Bad Credit Car Loans

First, it’s important to note that all lenders have different work, income, and even residency requirements. However, if you’re applying with a bad credit car lender, also known as a subprime lender, they tend to follow similar guidelines for who they’re willing to approve for auto financing.

When it comes to your work situation and what type of income you’re bringing in each month, there are some situations that subprime lenders simply don’t accept.

No Income at All

If you’re not bringing in any income from a job or any other type of assistance, expect to be turned down. Any car lender, bad credit or not, is going to need you to provide proof that you have a stable income.

Some subprime lenders can accept income such as alimony, permanent disability, pension, and even public assistance – if you can prove that you’re going to receive it for the entire duration of your auto loan term, that is.

To get into a car loan, you must have provable, consistent income that can support the auto loan the whole time you’re repaying it.

Sparse Work History

This requirement can vary, but borrowers who haven’t held down the same job for around six months to a year can often be turned down for a car loan. Auto lenders typically also require you to have consistent work history over the last three years.

Subprime lenders look for stability in your work history and employment. The longer you’ve held the same job in the same line of work, the higher your chances of getting approved for a car loan.

Brand-New Job

If you just started a job in a new field, then a subprime lender may be hesitant to approve you for financing. Subprime lenders prefer borrowers who’ve been at the same job for at least six months to a year.

However, if you recently switched employers but it’s in the same line of work, then they’re more likely to be understanding of that situation.

Living Situations and Bad Credit Auto Loans

Situations That Can Deny You a Bad Credit Car LoanAlong with having work and income requirements, subprime lenders also take a look at your residence history. While living situations can vary greatly, they are again looking for stability.

A stable borrower is one that is more likely to repay their auto loan. So, the longer you’ve been living in the same area, the higher your chances for an approval. However, just because you’ve lived in the same town for 20 years doesn’t always mean you meet the residency requirements.

Here are a few living situations that subprime lenders probably won’t accept:

You’re Not a Homeowner or a Renter

To meet residency requirements, most subprime lenders require that you’re a homeowner or a renter. If you’re a homeowner, you must prove your residency with a recent utility bill in your name, or maybe even a home title in your name if you don’t have any utilities in your name.

If you’re a renter, then your name must be on the lease. You should also expect to need a recent utility bill in your name to prove your residence. Some lenders may even require a copy of a lease agreement, a mortgage statement, or a copy of a house payment/rent check.

However, if you live with relatives or you live at an apartment where your name isn’t on the lease, then it could be more difficult to qualify for a car loan. Subprime lenders require that their borrowers have a permanent address, with documents that prove that you live there. If you don’t have any utilities in your name, or your name isn’t on a lease or mortgage statement, then you could run into trouble getting approved for auto financing.

You Don’t Have a Permanent Address

Some people live in RVs, or even hotels, to accommodate a nomadic lifestyle. While having the flexibility to move wherever you’d like at the drop of a hat suits many people, the sad news is that these unconventional ways of life aren’t likely to meet the requirements of a car lender. Since your address isn’t permanent, it can make a subprime lender hesitant to approve you for financing.

Other Requirements of Subprime Lenders

There could be many different reasons why a lender can deny you for an auto loan. To help you be best prepared, here’s a list of other common requirements of subprime lenders:

  • Must have a cell phone or landline phone in your name (no prepaid phones)
  • Have to make a down payment of at least $1,000 or 10% of the vehicle’s selling price
  • Bring a list of five to eight personal references with complete contact information
  • Must have a valid driver’s license with your current address

Subprime Lenders and Bad Credit Car Dealerships

If your credit is worse for wear, you’re likely to have a better chance of getting approved for a car loan if you apply with a subprime auto lender, since they consider more than just your poor credit score while they determine your eligibility for a car loan.

Where are subprime lenders? They’re signed up with special finance dealerships, and they are more prominent nowadays. Here at Auto Credit Express, we know what dealers are signed up with subprime lenders, and we can look for one in your area at no cost.

Fill out our free auto loan request form, and we’ll get right to work looking for a dealership near you with the bad credit lending resources you need.

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