The Real Cost of Borrowing Money

"Once, when my mother mentioned an amount and I realized I didn't understand, she had to explain, 'that's like three Mercedes.' Then I understood." — Brooke Shields The final cost of borrowing money often involves much more than just the interest rate. A variety of other monetary and nonmonetary costs should be considered in determining the real cost of borrowing. For example, a loan that requires you to maintain certain financial ratios may be unrealistic for your particular business. Your checklist for reviewing the costs of a bank loan should include: direct financial costs, such as interest rates, points, penalties, and required account balances indirect costs and loan conditions, such as periodic financial reporting, maintenance of certain financial covenants, and subordination agreements personal guarantees needed to obtain the loan The Real Cost of Borrowing Money Back to Business Resource >>