Breakout Capital believes it is every lender’s responsibility to ensure that small business borrowers are provided with sufficient cost information to adequately compare financing alternatives. Remember that APR is just one of many ways to measure cost and may be most effective when comparing financing products of similar expected duration. The most relevant cost metric to focus on when comparing across alternatives depends primarily on your specific circumstance and objectives. In addition to disclosing APR and other relevant cost metrics associated with a loan offer, your lender should explain how it makes sense based on your company’s financial profile and objectives. And remember, upfront costs are not the only things you need to understand; ask about any penalties or discounts if you pay the loan off early or whether you incur any fees, double dipping of interest or interest acceleration to which you may be subject if you access additional capital with your lender.
What is APR?
APR, or Annual Percentage Rate, represents the total annualized cost to borrow capital. APR includes the annual rate of interest plus fixed fees associated with borrowing the capital, such as origination fees or closing costs. This is for illustrative purposes only. Please reference your contracts for actual pricing and terms.
In the calculator below, use the sliders or type in your inputs in the left column. Results will populate in real time in the column on the right. You can also select between the Daily, Weekly, and Monthly tabs based on your repayment schedule plan.
APR Calculator
How Does APR Relate to a Loan from Breakout Capital?
While APR is a standard cost metric in consumer loans, it is not viewed as universally applicable to all small business financing options; there are literally dozens of different types of working capital solutions available to small business borrowers, many of which do not a) feature amortizing principal balances or b) represent “credit” with fixed terms.
For “traditional” loans that have a “fully amortizing balance” over multiple years (such as a mortgage or an SBA loan), APR is a great representation of cost since interest is charged on the outstanding principal balance (daily, weekly, or monthly) over the life of the loan . This means that if you pay back your loan more slowly, you will be charged additional interest on the outstanding balance; so while your APR stays the same, the amount of interest you pay can increase significantly if you are unable to repay on schedule.
Certain types of small business loans, however, are structured differently (whether this structure is optimal depends on your specific situation), and the structure can make APR misleading, especially for shorter-term loans. While Breakout Capital offers a variety of working capital solutions, our most popular product is our Fixed Repayment Term Loan. For these loans, we offer our customers access to quick and affordable capital in exchange for a fixed payback amount; there is no established interest rate that accrues over the life of the loan. Consequently, if you fall behind a few payments or pay back the loan slower than expected, you will not be charged additional interest on the outstanding loan balance*. In this situation, the effective APR on your loan decreases the longer the loan is outstanding while the total amount of interest you owe does not change (continued delinquency, however, could hinder your ability to access capital through Breakout Capital or other lenders). Conversely, we offer every customer early repayment discounts, meaning we will waive a portion of the remaining interest to the extent you repay your loan early (we waive all remaining interest if you renew with us).
APR also may not be the best cost measure for short-term loans, but it’s still something we believe you should know. At Breakout Capital, we offer loans with terms generally ranging from six months to two years. Due to the inherent fixed costs of extending any form of credit, a six-month loan will almost always feature a higher APR than an 18-month loan to the same borrower. The cost of capital (or total interest), however, should be substantially lower for the shorter-term alternative**. So which loan should you select: the one with the higher APR and lower total interest or the one with the lower APR but higher interest? That depends on your specific situation; if you are taking out a single loan and want to pay it back with as little interest as possible (and can’t get early repayment discounts on longer-term products), the loan with a higher APR but lower total cost may make the most sense. But be very careful here; for many lenders, renewal rates exceed 40% and selecting the higher APR option and continuing to borrow at similar rates could quickly strain the cash flow on your business.
The rates of renewal in the shorter-term space is one of the primary reasons Breakout Capital is a big proponent of universal reporting of APR for all products. In the previous example, APR does “overstate” the cost of capital if you pay it back on time and never borrow at that same rate again because you did not pay interest on the loan for a year or more. However, to the extent you continue to borrow at the same rate or higher, it’s crucial that you look beyond “Total Interest” or “Total Cost of Capital” on each loan and ensure you are able to profitably operate your business at these annualized rates.
At Breakout Capital, we want YOU to be empowered to control your financial destiny. Education and the power of information represent important first steps, and we will always work to optimize your financial situation. If you have experienced financial problems in the past, we won’t cycle you on high cost capital; we will work with you to create clear steps to lower your rate and create a bridge to sustainable products for your business.
*You may be charged additional fees including but not limited to NSF fees, collections costs, and other fees to the extent you default on the loan.
**This assumes the credit profile of the applicant is similar.
This calculator is not intended to apply to cash advances. Cash advances are not credit or a “loan” and are structured as purchase and sale agreements. There is no “fixed term” or “fixed payment amount”, and consequently it is impossible to calculate APR. However, we are working with some of the largest lenders in the space to introduce an “effective APR” calculator that should enable cost comparison for a non-credit product such as a cash advance.
