Small business lenders often remain under the impression that equipping business owners with several cost-associated tools will help them to make a better decision. But, contrary to these notions, business entrepreneurs rely on total payback cost according to survey from Lendio.
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Two-thirds prefer total payback cost
The survey did establish that the method of showing loan cost is a key factor for borrowers to make their final decision on whether to borrow or not. Lendio conducted a random survey involving 1,000 small business owners across the U.S. The survey presented three options showing the cost of the loan, which were APR, factor rate and total payback amount.
As many as 66.6% of small business respondents were more comfortable about making a decision based on the total payback amount while 17.4% and 15.3% of the survey takers chose APR and factor rate as a preferable tool.
Respondents were also asked about their intention to take a loan based on three APR price points, i.e., 12% APR, 36% APR and 100% APR. The response was clear as more businesses rejected the possibility of taking a loan at higher APR.
Lendio’s CEO Brock Blake said that selecting the right loan and understanding the true cost of it is a challenging task for any small business entrepreneur. He added that the response favoring total payback amount indicates that the lenders should avoid propagating a one-size-fits-all kind of approach when it comes to showing costs to small businesses.
Blake said that lenders should pay attention as to how information about the cost of capital associated with a particular type of loan product is presented to business owners.
Based on the critical role played by small businesses in the U.S. economy, it is imperative for lending marketplaces to help these businesses make clear decisions, which in turn, can help boost overall growth.