The True Cost of Traditional Financing Products

This article is from Excelsior Growth Fund, a Venturize supporter.

Small business owners seeking funding to start, operate, or expand their businesses often fall prey to lenders who are deceiving about the costs associated with borrowing. Monthly interest rates alone are not an indicator of the overall cost of a loan. Predatory lenders may hide additional costs, such as the annual percentage rate (APR), closings costs, service fees, and other fees or penalties. If you are a small business owner looking for financing, it is essential that you do your research not only to calculate cost accurately, but also to become aware of all lending options available to you.

The following are examples of lending options from traditional banks that may be impractical or unaffordable once you calculate the complete cost:

Online Business Loans 

 If you need funding for your small business fast, online lenders can often provide financing for applicants in a matter of days, but this convenience comes at a high cost. Before signing, learn how to calculate the true cost of an online loan and explore the alternatives available to you.

Business Term Loans 

The most traditional form of a business loan involves borrowers receiving a lump sum payment from the lender, which is paid back in intervals over a fixed period of time. Be sure to evaluate the true cost of a business term loan  and learn alternative options if a term loan isn’t right for you.


This method of obtaining financing involves ‘selling’ your accounts receivables or customer purchase orders to a financing company, which pays you face value. While this option may be best for some, there are high fees involved, which are not suitable for all businesses. Before you select this option, learn more about how much factoring would really cost you.

Merchant Cash Advances 

Small businesses can ‘sell’ credit and debit card receipts to a merchant cash advance provider for financing. Although a potential option for businesses with a high amount of credit/debit card receipts, there are again high costs associated with this method. The true cost of merchant cash advances may surprise you, but may also help you make the right decision for your small business.

Alternative Sources of Financing

As an alternative to deceptive, costly bank options, Community Development Financial Institutions (“CDFIs”) such as Excelsior Growth Fund (EGF) are non-profit organizations that provide credit options to business owners who may not qualify for loans from typical banks. As community and economic development financial institutions they offer a reliable source of lower-cost funding for small businesses at any stage in their development. These organizations, including EGF, are reputable and can help small business owners avoid the high costs associated with products from traditional banks.

About Excelsior Growth Fund

At Excelsior Growth Fund (EGF), our mission is to help New York businesses grow by providing small business loans and advisory services. As a nonprofit organization and a U.S. Treasury-certified Community Development Financial Institution (CDFI), we’re a responsible lender you can trust.

We understand that many small businesses can have difficulty getting traditional bank financing and EGF can help. Our products are affordable and flexible, and our advisory services can help you reach your business goals. Our signature product, the EGF SmartLoan™, provides up to $100,000 through a streamlined online platform.

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