Lower Prepayment Penalties

1. Use a Conventional Business Loan over an SBA Loan.

SBA-backed business loans tend to have higher closing costs, prepayment penalties and guarantee fees. Typically, closing costs for conventional business loans are 2 to 3 percent less than for SBA loans. Similarly, prepayment penalties for conventional loans span 1 to 5 years while SBA loans are concentrated between 3 to 5 years.

2. Take a Business Loan with a Longer Term.

Business loans with longer terms (20 years or more) have lower monthly payment costs. This helps free up cash for working capital needs. Here's an example:

Business Loan Amount: $200,000
Interest Rate: 8 %

Monthly payments

For a 15 year loan: $1,911.30
For a 20 year loan: $1,672.88
For a 25 year loan: $1,543.63

3. Use a Business Line of Credit Instead of a Business Term Loan.

Unlike most business loans, a line of credit allows borrowers to pay back funds free of cost. Generally borrowers must square their account monthly for some initial period of time.