Small business short-term loans can be expensive, but worse, borrowers may not always know what they’re paying.
That’s according to online SME lender Able, which is looking to heighten the transparency of small business loan rates.
“In talking to thousands of small business owners about their financing, we found that an overwhelming majority did not realize the actual rate they are being charged,” said Able Cofounder and CEO Will Davis in a statement on Monday (April 11).
The company revealed its True Rate Calculator, a tool for small business borrowers to calculate the actual cost of interest on their short-term financing. The calculator uses data on a current loan, including how a borrower makes payments, how frequently payments are made and the origination fee.
It’s a solution aimed at getting small business owners to switch lenders and refinance with Able. But the calculator can also bring transparency to an industry that the company said often hides its true APRs in fine print.
“It is not surprising most small business owners are confused about the actual rate they are paying on their current loans and lines of credit,” Davis continued. “This is what the industry prefers — to keep entrepreneurs in the dark by marketing rates exclusive of prepayment and origination fees and not being transparent about loan attributes, like daily withdrawals, that put owners in a cash flow crunch.”
The calculator was rolled out in conjunction with Able’s new refinance loan product that can help a business refinance through Able once the borrower sees how much they could save in interest payments. Able says its average APR is 10.7 percent.
The company also claimed that small business borrowers save an average of $31,000 in interest payments by using the company’s loans that include at least a portion of backer support, meaning friends, family and fans help to fund the loan.