Business loans look simple on the surface — borrow X, pay back X plus interest. But lenders evaluate your application using a metric you might not have heard of, and fees you could overlook can dramatically increase your true cost. Here are the three things every business owner needs to understand before applying.
DSCR: The Number Lenders Actually Care About?
DSCR stands for **Debt Service Coverage Ratio**, and it's the single most important metric lenders use to decide whether to approve your business loan. The formula: DSCR = Monthly Net Operating Income / Monthly Loan Payment. A DSCR of 1.
25 means your business generates $1. 25 for every $1. 00 of debt payment.
Most SBA lenders require at least **1. 25**. Below 1.
0 means approval is unlikely. A DSCR of 1. 5 or higher puts you in a strong negotiating position for lower rates and better terms.
SBA Loans vs. Conventional vs. Online Lenders
**SBA loans** (7(a) and 504 programs) offer the lowest rates — typically 5–10% — with longer terms (up to 25 years for real estate). The trade-offs: extensive paperwork, longer approval times, and personal guarantee requirements. **Conventional bank loans** are faster but require stronger credit and collateral.
**Online lenders** offer the fastest funding but charge significantly higher rates — 15–40% APR when all fees are included.
Why Origination Fees Matter More Than You Think
An origination fee of 1–5% is deducted upfront, so you receive less cash than the loan amount — but you still repay the full principal plus interest. On a $250,000 loan with a 2% fee, you receive **$245,000** but repay the full $250,000 plus interest. That raises your effective APR by roughly 0.
4–0. 5 points. Comparing loan terms: a 1-year term costs ~$11,672 in interest, a 5-year term costs ~$57,740, and a 10-year term costs ~$122,120 — always match the term to the asset's useful life.
| Term | Monthly Payment | Total Interest | Total Cost |
|---|---|---|---|
| 1 year (12 months) | ~$21,806 | ~$11,672 | ~$261,672 |
| 3 years (36 months) | ~$7,899 | ~$34,364 | ~$284,364 |
| 5 years (60 months) | ~$5,129 | ~$57,740 | ~$307,740 |
| 7 years (84 months) | ~$4,007 | ~$86,588 | ~$336,588 |
| 10 years (120 months) | ~$3,101 | ~$122,120 | ~$372,120 |
- Check your DSCR — aim for 1.25 or higher. Use the calculator below to find yours.
- Review your personal and business credit scores — most lenders want 680+
- Know your time in business — most SBA lenders require 2+ years of operating history
- Compare the true APR including all fees, not just the stated rate
- Understand whether you're personally guaranteeing the loan (most small business loans require it)
Calculate Your Business Loan
Ready to see your numbers? Use the Business Loan Calculator to see monthly payments, DSCR, total interest, and the impact of origination fees on your loan.