Every business owner wants the best deal on funding. That’s smart. But if your only focus is getting the lowest rate, you might be setting yourself up for failure.
Let’s talk about why chasing the cheapest money is a mistake—and how to make sure you’re actually choosing the right money for your business.
Myth #1: A Lower Interest Rate Means a Lower Cost of Capital
Business owners get fixated on securing single-digit interest rates, but the truth is: They don’t exist.
The cheapest funding available for small businesses—short of robbing a bank—is through the SBA. But even their rates aren’t as low as people think. SBA rates start at prime + 3-6.5%, and with today’s prime rate at 7.5%, the absolute lowest possible rate starts at 10.5%—but that’s only if you have immaculate credit, years of strong business financials, sizable collateral to pledge, and are borrowing over $350,000. And that's before the lenders' fee. Banks and private lenders stack their own fees on top, pushing the real cost of capital well over 16% APR, minimum—often times, much higher.
And even if you do get that rate, does it actually save you money? No.
Understanding the true cost of a business loan is the difference between smart funding and a financial trap. A lower interest rate can actually cost more when you factor in:
➤ Variable rates that climb over time – What looks "cheap" today could cost double in a year.
➤ Years of compounding interest – Annually, monthly, or even daily. Yup, you read that right—some SBA loans charge daily interest for the entire length of the repayment term.
➤ Pre-payment penalties that punish you for trying to be financially responsible – Paying off early should save you money, but some loans charge extra for it.
➤ Lender fees that inflate the total cost before you even see a dime – Origination fees, closing costs, and processing fees add up fast.
➤ And all of the other hidden fees that get buried in the fine print – Because let’s be real, banks don’t make money by keeping things simple.
By the time you add it all up, a shorter-term funding option can cost you tens of thousands of dollars less than a long-term, "low interest" loan that drags on for years.
Myth #2: Long-Term, Monthly Payments Are the Best Option
A long-term loan sounds good. Low monthly payments, more time to repay. But here’s what they don’t tell you:
✖︎ It locks up your borrowing power. Once you take a large, long-term loan, your debt-to-income ratio tanks. That means you can’t get additional funding when you need it. And you will need it.
✖︎ Your credit score takes a hit. Carrying a high balance for years, even with on-time payments, lowers your credit score. And guess what? Lower credit score = even higher rates in the future.
✖︎ It’s the wrong option for short-term needs. If you take out a 5-year loan to cover payroll, rent, or a temporary cash flow gap, guess what? You’ll still be paying for a paycheck of an employee—one who likely doesn't even work for you anymore—for the next half-decade.
A long-term loan is great for a long-term investment (like buying real estate or equipment). But if you’re using it to cover short-term needs? You’re trapping yourself in unnecessary debt.
So, What’s the Right Way to Choose Funding?
It's simple: Match the funding to the need.
✓ If this expense won’t be relevant to your business in a year, don’t pay for it with funding that you'll still be paying for five years from now.
✓ If speed matters, don’t go chasing a lower rate that takes months to secure.
✓ If flexibility is important, don’t take funding that comes with pre-payment penalties that will punish you for getting ahead.
Short-term need = short-term solution.
Long-term need = long-term solution.
Long-term need = long-term solution.
Most Funding Companies Won’t Tell You This. We Will.
Here’s the ugly truth: this industry is unregulated and filled with companies who will tell you anything to get your application in.
🚩 They’ll promise long terms, monthly payments, and low rates—just to get you in the door.
🚩Then they’ll come back with something completely different, hoping you’ll just take it anyway.
🚩 And if you don’t? They wasted your time and theirs.
You don’t have time to waste or games to play. At Capitalize Funding, we don’t work that way. We don’t just hand you an offer and hope you take it—we help you choose the right funding for your business, with honest guidance every step of the way. That sometimes means having tough conversations, laying out hard numbers, and telling you what others won’t. But it also means you get funding that actually works for you—not just something that looks good on paper.
Want to talk through your options? Let’s make sure your funding actually works for your business—not against it. Schedule a complimentary funding consultation with us today.
