Should you pay off your business loan early?

Getting rid of business debt can save you money as long as the fees don't outweigh the savings.

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One of the most notorious features of personal and business loans is an early repayment or prepayment fee. This is when you are charged a fee if you decide to pay back your whole loan earlier than agreed.

Repaying ahead of schedule can save you money on interest and gets you out of debt sooner, but it also means less money for the lender than they expected. To compensate, some lenders impose strict early repayment fees if you pay back sooner than you need to. Discharge fees may also come up when you finish paying back the loan and the account is closed earlier than expected.

If there’s a chance you might pay back your loan sooner than is stipulated in its terms and conditions, you may want to check to make sure there are no prepayment or discharge fees involved.

Lending Loop Business Loan

  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $500,000
  • Interest Rate: Starting at 5.9%
  • Requirements: Annual business revenue of at least $100,000, at least 1 year in the business, minimum credit score of 600+
  • Borrow up to $500,000
  • Online loan application
  • Receive personalized interest rates

Lending Loop Business Loan

Lending Loop offers personalised loans up to $500,000 for small business owners.

  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $500,000
  • Interest Rate: Starting at 5.9%
  • Requirements: Annual business revenue of at least $100,000, at least 1 year in the business, minimum credit score of 600+
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Is early repayment worth the fees?

Generally speaking, if your lender has no prepayment fees and no discharge fees, you can save money by paying the entire business loan back sooner. If your lender does have early repayment or discharge fees, then it might still be possible to save money with early repayments or it could end up costing you even more. It would depend on how much you have left on the loan and what the penalty fee is.

Here’s how to calculate if it’s worth it:

  1. Determine how much you could save with early repayment. Add up the total amount you will spend on interest over the rest of the loan period and factor in any ongoing fees. This is the total amount you might save if you were to repay it all today.
  2. Subtract any prepayment or early discharge fees from the amount you can save. Pay close attention to the type of fee it is (percentage or flat) and do not assume that all lenders have similar costs.
  3. The amount you are left with is the value you will save if you pay off your loan early. If the figure is negative, it means that repaying your loan early will actually cost you more than it will save you.

Business loan options in Canada

Name Product Interest Rate Min. Loan Amount Max. Loan Amount Loan Term Minimum Revenue Minimum Credit Score
5.49% - 22.79%
$1,000
$300,000
6 months - 5 years
$5,000/month
450
SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days months and can show a minimum of $5,000 in monthly deposits ($60,000/year).
5.90% - 26.50%
$1,000
$500,000
3 months - 5 years
$100,000/year
600
Lending Loop offers personalised loans up to $500,000 for small business owners.
7% - 29%
$5,000
$100,000
3-18 months
$5,000/month
N/A
Company Capital offers business loans of up to $100,000 to small business owners who have been operating for at least 6 months and can show a minimum of $5,000 in monthly revenue.

Compare up to 4 providers

Jacob saves big

Construction workers doing home repairsImagine this scenario: Jacob has a general contracting business in a coastal town that covers top-to-bottom home repair and offers everything from roofing to plumbing. Business was always steady until a hurricane swept the coast and damaged many homes – leaving them in desperate need for repair.

Only having 2 employees, he realized he needed to hire 3 more to keep up on home repairs so he wouldn’t lose customers. He took out a loan from Lending Loop for $50,000 at an APR of 9.3% for a 5-year term. Jacob got charged a 4% origination fee that came out to $2,000 and expected to pay $1,045 a month. When all was said and done, the loan would have an additional $14,700 tacked on with interest and fees.

Business ramped up and Jacob paid off the loan 2 years early, saving $9,312 on missed additional interest. The loan would have cost him $64,700, but instead only cost him $55,388.

How to maximize your chances of saving money:

  • If you want the option of repaying a loan early, it can be worth looking for a lender that doesn’t charge prepayment fees. Don’t forget to compare benefits and interest rates too.
  • Use an online calculator to see how certain repayment options can help you save more money. Ideally your chosen repayment plan will be perfect, but choosing a provider without early repayment or discharge fees is a good way of planning for the best.

Pros and cons of repaying your loan early

It might seem like a good idea to pay back your business loan early, but even if there are no prepayment or discharge fees, it might not be in your best interest.

  • Save money by paying less interest.
  • Your business credit score could improve if you are debt-free.
  • It will free up money to reinvest in your business.
  • You may be able to get a new loan with better rates and terms elsewhere.
  • You can avoid ongoing fees.
  • Interest paid on business loans is tax deductible and you will lose this tax deduction. If this affects your tax bracket then it might cost you more than it saves you.
  • You may need more financing after closing the loan. The last thing you want to do is repay a loan early only to have to take out a new one because business is slow and you have no cash reserves.
  • Early repayment and discharge fees may apply and can be substantial. In some cases, this could be a set percentage of the remaining balance, which can make big early repayments entirely unsuitable.

Bottom line

Early repayment isn’t always the right option and providers without prepayment fees are not always an ideal choice. However, it is an important factor to consider when comparing business loans. Even if you choose not to use the benefit, simply having the option of paying a loan back early without worrying about hidden costs could be good for peace of mind.

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