The Time Value Of Money

Why Savvy Business Owners Focus on Loan Terms Over Interest Rates

In the world of business financing, the spotlight often lands on interest rates. It’s a figure that jumps out at you, a single percentage that seems to dictate the ‘affordability’ of a loan. But if there’s one piece of advice that seasoned business owners might offer, it’s to look beyond the rate. The term of a loan, although less immediately eye-catching, could significantly influence your business’s growth trajectory and financial health more than the interest rate ever will.

The Fallacy of Low-Interest Appeal

Imagine stepping into a bank with a business plan in hand, hopeful and ready to take your business to the next level. The loan officer presents two options: one loan has a lower interest rate but a short repayment period, and the other has a higher interest rate with a much longer repayment term. Instinctively, you lean towards the lower interest rate — it’s a common reaction. However, this choice might not be the best for your business in the long run.

The allure of low-interest rates is understandable. It suggests less money paid back over time, signaling cost-effectiveness at a glance. Yet, this surface-level assessment disregards a critical component of growing a business: cash flow…