Term loans comparison: four things to normalise before offers mean anything

Two offers are almost never comparable as they arrive. They run for different lengths, place their fees in different places, and describe their cost on different bases, and any one of those differences is enough to make the cheaper offer look like the dearer one.

This page is about the normalizing work a term loans comparison requires before it means anything, and about what decides the result when the cost figures land close.

What to take away

Four things to normalize first

Term. A longer schedule lowers each payment and raises the total. Comparing a short offer against a long one on the payment tells you nothing at all. Compare on cost per dollar received, scaled to a year.

Fee placement. The same charge behaves differently depending on where it sits. Deducted from the advance, it reduces what you actually receive. Added to the balance, it raises what you owe and hides inside the payment. Billed separately, it never appears in the schedule at all. Pull every charge out and put it in one of those three places for both offers.

Cost basis. Interest charged on the declining balance behaves differently from a charge computed once on the original amount and spread across the payments. The second keeps charging you for money you have already returned. Establish which basis each offer uses before you compare any quoted figure.

Repayment frequency. Monthly, weekly and daily collection of the same nominal total are not the same obligation. Faster collection retires the debt sooner, which raises the annualized cost of a fixed charge and removes your ability to sequence a bad week.

The arithmetic for all four is set out in the term loans calculator. Do it for both offers in the same spreadsheet, on the same day.

The figure both offers can be placed on is cost per dollar received, annualized: total every payment the schedule asks for, add every fee the offer puts on you anywhere, divide by the net amount that actually reaches your account, then scale that ratio to a year so a short schedule and a long one can be read side by side.

The comparison grid

Fill one column per offer. Nothing here is a figure you can look up; every cell comes off the documents in front of you.

Line	Offer A	Offer B

Every line in that grid comes off the documents in front of you, not off a rate sheet. Fill both columns with the same lines:

The bottom half of that grid is what people skip, and it is where two offers that price identically stop being equivalent.

When the cost figures land close

Below a difference you would notice, price stops deciding. Rank on these instead, in roughly this order — there is no score to total, so let the first line where the two offers actually differ decide.

What early repayment costs. On a balance-based cost, early settlement genuinely saves money and a penalty is what stops you capturing it. On a fixed charge, there is nothing to save and an exit fee is pure additional cost. This one provision can be worth more than a visible difference in the headline.

What is pledged, and how widely. A UCC-1 financing statement covering one identified asset and one covering everything you own are different commitments with different consequences for your next application. So is a capped guarantee against an uncapped one.

What triggers a default. Whether a breach elsewhere becomes a breach here, whether there is a cure period, and whether the whole balance can be called. These provisions are set out in application and repayment.

What you must keep delivering. Reporting obligations and maintained ratios are ongoing work and an ongoing risk of technical default.

Who you will be dealing with. Whether the loan stays with the institution that wrote it, and whether there is a person who knows your file.

Comparing across structures, not just across lenders

Sometimes the right comparison is not two term loans at all.

If the need is a repeating gap rather than a purchase, price a facility beside the loan. A facility charges for availability as well as borrowing, and the two states are set out in lines of credit.

If the money buys an identifiable asset, that asset can often secure itself. This changes both the price and what else you must pledge.

Run every structure through the same conversion. A number that survives translation between products is the only thing that lets you choose between them, and the errors that survive it are collected in term loans mistakes.

Keep the offers contemporaneous

Quotes age. So does your file, particularly if applications are spread across months and each one leaves a record.

Do the early filtering through conversations, then run the real applications in a compressed window so the offers you compare were made under the same conditions. Ask each institution how long its quote stands, and keep the whole run inside the shortest of those periods.

Where to check anything specific

Every figure in a comparison comes from the offers themselves. For general background on how these products are structured, with nothing being sold, the SBA business guide and the FDIC's Money Smart for Small Business are neutral sources. The SBA's 7(a) and 504 programs are the reference structures for a guaranteed term loan in the US.

Common questions

Can I compare offers on the monthly payment?

No. The payment moves with the term, so it can be made to look better without the cost improving at all.

One offer quotes a rate and the other quotes a total. What do I do?

Convert both to cost per dollar received, annualized. That figure survives whichever language the offer was written in.

What if the two offers come out identical?

Decide on prepayment, security, guarantees and default triggers. They are rarely identical, and they matter more in a difficult year than a small price difference does.

How long should the whole comparison take?

Short enough that the first offer has not expired by the time the last one arrives. Ask each institution how long its quote stands.