APR vs Simple Interest Rate
Simple interestis total interest divided by the loan amount. If you borrow $45,000 and pay back $52,000, the interest is $7,000 — that's a 15.56% simple interest cost. That's the framing most MCA and Credit-Based-program lenders quote. Clean, easy, and not the number you should use to compare loans.
APR (Annual Percentage Rate) is the annualized rate on the balance you actually have outstanding over time. It accounts for the fact that the borrower starts paying immediately — every payment chips the balance down, and every payment after that is sitting on a smaller balance. APR is the rate that makes the math work backwards from the payment schedule.
On the $45K loan with $52K paid back over 12 months, simple interest reads as 15.56% — that's the dollar cost ($7,000 ÷ $45,000). True APR lands near 28%because over those 12 months you didn't have the full $45K the whole time. You were chipping it down with every payment. Same loan, two ways of talking about what it cost.
The dollar cost. You paid $7,000 of interest on $45,000 borrowed — 15.56% of what you took home. Doesn't care how long the loan runs.
The annualized rate. Over 12 months, you were effectively paying 28.65% per year on the balance you actually had outstanding. Higher because your balance shrinks with every payment.
Try the default ($45,000 received, $52,000 paid back, 12-month biweekly term). Then drag term shorter — APR rises sharply because you're paying that $7,000 cost over less calendar time. Drag total paid back up — both numbers rise, but APR rises faster. Frequency alone moves APR only a little once term is fixed.
Debt Service & DSCR
Debt serviceis everything you pay every month on every loan and lease the business has — term loans, credit cards (the minimum payment), equipment leases, MCA payments, lines of credit. Sum it all up. That's your monthly debt service.
DSCR (Debt Service Coverage Ratio) takes that number and asks: how does it compare to the cash flow the business actually produces? The math is:
DSCR = Annual Net Operating Income ÷ Annual Debt Service
SBA underwriters want to see 1.15x or higher on most files — meaning the business generates at least $1.15 of cash for every $1 of debt payment. Below that, lenders worry one bad month will trigger a default. Above 1.5x, you have real room to absorb a downturn.
The payment calculatorshows you the monthly payment side. Pair it with your tax return's net income to ballpark your DSCR before you apply.
Business Credit vs Personal Credit
Personal credit is your FICO score — tied to your social, built from credit cards and personal loans. The big three (Equifax, Experian, TransUnion) all report it.
Business creditis tied to your EIN. Dun & Bradstreet (Paydex), Experian Business, and Equifax Business each maintain a separate report on trade lines you've opened in the business's name — Net 30 vendors, business cards under the EIN, equipment financing.
How lenders weigh them depends on loan size:
- Under $250K SBA: personal credit is weighted heavily. Most lenders want 680+ FICO. Business credit is a tiebreaker.
- $250K–$1M SBA: both matter. A thin business file can still get approved if personal credit and DSCR are strong.
- Over $1M: business cash flow and history start to dominate, but every owner with 20%+ ownership still personally guarantees.
Building business credit is slow — start with a Net 30 vendor account, pay early, then a small business card under the EIN. Takes 6–12 months of clean reporting to move the needle.
Loan-to-Value (LTV)
LTVis the loan amount divided by the value of whatever you're pledging as collateral. A $400,000 loan on a $500,000 building is 80% LTV.
Lenders cap LTV because they want a cushion if they have to foreclose and sell the collateral in a hurry. Typical caps:
- SBA 7(a) owner-occupied real estate: up to 90% LTV
- SBA 504 real estate: 90% LTV (10% borrower down)
- Investment / non-owner-occupied real estate: 70–75% LTV
- Equipment financing: 80% LTV on new equipment, 65–70% on used
- Working capital: no LTV — these aren't asset-backed
Higher LTV = less of your own money down, but tighter underwriting on everything else (DSCR, credit, experience). Lower LTV gives you more room to negotiate on rate.
Secured vs Collateralized
People use these interchangeably and that's fine in most conversations. There's a small distinction:
- Secured is the broader term. A loan is secured if the lender has any claim on any of your assets — personal guarantee, blanket lien on business assets, specific collateral, anything.
- Collateralized usually implies a specific named asset backing the loan — a particular building, a particular piece of equipment, a CD pledged to the bank.
On an SBA file, you'll see "UCC-1 blanket lien" (secured) plus a specific collateral schedule (collateralized) plus personal guarantees from 20%+ owners. All three together is the norm.
Unsecured vs Secured Loans
Secured loans give the lender a claim on your assets if you default. SBA loans are secured. So are mortgages, auto loans, and most equipment financing. Because the lender has a recovery path, the rate is lower.
Unsecured loansare backed only by your promise to pay. Personal credit cards. Some business term loans under $50K. Most online lenders' smaller offers. The lender takes more risk — so the rate is higher, often substantially.
For business borrowing in 2026:
- Secured (SBA 7a, conventional term): 9–13% APR typical, 10-year terms
- Lightly secured (Credit-Based programs): 11–18% APR, 5-year terms
- Unsecured (MCA, online term): 30%+ APR effective, 6–18 month terms
The gap is large enough that pledging collateral — even a CD or a paid-off vehicle — is usually worth it on amounts over $100K.
SBA 504 vs SBA 7(a)
Both are SBA loans. Both are real, low-rate financing. They serve different purposes.
SBA 7(a) — the workhorse
Used for almost anything: working capital, business acquisition, partner buyouts, debt refinance, equipment, real estate. Single loan from a single bank lender. Up to $5M. Terms run 10 years (working capital, acquisition) to 25 years (real estate). Roughly 80% of all SBA dollars go out as 7(a).
SBA 504 — for fixed assets only
Real estate or major equipment only. Three-loan structure:
- 50% from a bank lender (1st position)
- 40% from a Certified Development Company (CDC) backed by the SBA (2nd position)
- 10% borrower down payment
The CDC portion gets a 20- or 25-year fixed rate that's among the lowest commercial rates available. Trade-off: more paperwork, longer closing (60–120 days vs. 30–60 for a 7(a)), and you can't use it for working capital.
Rule of thumb: buying real estate? Run the 504 math. Anything else, 7(a) is faster and more flexible.
Grant vs Loan
A grant is money you don't pay back.A loan is money you do pay back, with interest. The distinction matters because every few months a new wave of pitches claims to have "SBA grants" — they don't exist for general business funding.
The SBA guarantees loans made by banks. It does not hand out grants to operating businesses for working capital, expansion, or hiring. The actual grant programs the SBA touches are narrow:
- SBIR / STTR: federal R&D grants for tech innovation. Multi-stage, very competitive, takes 6–12 months.
- State Trade Expansion Program (STEP): small grants to help small businesses begin exporting. Run by individual states.
- Disaster-related grants: after federally declared disasters, narrow grant programs sometimes get appropriated.
If someone offers you an "SBA grant" in exchange for an application fee, it's a scam. Real federal grants are listed at grants.gov and never charge application fees. SBA loans — including 7(a), 504, microloans, and Express — are all loans. We can place them; we can't conjure grants.