The percentage used to calculate interest charged on a balance over time.
For example, two businesses apply for a $100,000 loan. One with strong credit and 8 years of operating history is offered a 7% interest rate, while a startup with limited history is quoted 14%. The higher interest rate reflects the lender's perception of greater repayment risk.
Why it matters: It directly determines the true cost of borrowing and impacts the business's overall profitability and cash flow.
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