The Cost of Capital: Comparing SBA, Bank, and Hard Money
Comparing loan offers by interest rate alone is a common — and costly — mistake. The total cost of capital depends on rate, fees, term length, prepayment penalties, and the structure of payments. Two loans with the same rate can produce very different total costs.
The Components
True cost of capital includes: nominal interest rate, origination fees and points, guarantee fees (for SBA), closing costs, prepayment penalties or yield maintenance, and the impact of the amortization schedule.
Term Matters
A 10-year SBA loan at 11% can have lower monthly payments than a 5-year conventional loan at 8% — because the longer amortization spreads principal further. Total interest paid is higher, but monthly cash burden is lower. The right choice depends on what the business actually needs.
Prepayment and Hold Period
If you plan to refinance in three years, a loan with a 5-year prepayment penalty changes the math entirely. Run the cost over your realistic hold period, not the full loan term.
Hard Money Reality
Hard money looks expensive on the rate (10–14%+) but on a 12-month hold it may be cheaper than waiting four months for a slower loan if the deal opportunity disappears.
Educational content only — not advice. KQT Advisors, LLC is a commercial loan broker; we are not a lender, attorney, accountant, financial advisor, or fiduciary. We do not originate loans or make lending decisions. The information in this article is provided strictly for general informational and educational purposes and reflects our understanding at the time of writing. It is not — and must not be construed as — financial, tax, legal, accounting, investment, or any other professional advice, and creates no advisor-client relationship. Loan programs, rates, terms, eligibility requirements, fees, and approval criteria are set by individual lenders, the SBA, and other parties and are subject to change at any time without notice. Examples are illustrative only and not guarantees of outcome. Nothing here is a commitment to lend, an offer of credit, or a representation that any specific structure will be available to or appropriate for any borrower. Always consult your own qualified financial, tax, and legal advisors before acting on any information in this article. To the maximum extent permitted by law, KQT Advisors, LLC and its principals, employees, agents, and affiliates disclaim all liability for any direct, indirect, consequential, or incidental loss or damage arising out of any use of, reliance on, or inability to use the information in this article.