When taking on financing as a small business, the correct course of action always hinges on answering this question: what am I trying to accomplish? The thing is, financing decisions don’t exist in a vacuum. Small businesses often miss the vital details when assessing whether to borrow or not, such as  the full financing cost, the drain on their time, the opportunity costs and baked-in fees.

The right financing option varies for every company. Here are the common pitfalls and the best ways to avoid them so your small business can choose the best option at each stage of your company’s growth.

Be aware of your real interest rate –  Surprisingly often, people who  think they know how to calculate interest rates often don’t. For example, if you borrow N1,000,000 and pay N1,100,000 back over three months on weekly instalments, your interest rate wasn’t 10 percent, as simple mathematics would dictate.

Taking a closer look at the time frame for the note and your average principal outstanding reveals that it’s actually closer to 80 percent. That’s a difference of 70 percentage points in your financing cost.

This mistake happens because most businesses simply calculate APR as total fees divided by the amount borrowed, rather than calculating the interest based on the amount outstanding at every point in time (i.e. the amortized amount). The difference is massive for small businesses as financing mistakes are compounded. In the example above, the actual annual rate is eight times higher than the optical.

Pay attention to hidden fees –  When taking out financing you must take into account origination fees. Many lenders charge origination fees of 3-4 percent, which are deducted from the loan amount. Depending on how quickly you pay that loan back, that fee can have a large impact on the true interest rate you’re paying. A N30 fee on a N1,000 loan is really a 3 percent fee upfront that will significantly skew your real APR, especially for short-term loans. It’s very similar to ATM fees that seem like a small amount, but can cost you big over the long-run.

When borrowing money, be aware of the fees that accompany the capital infusion: administrative fees, application fees, contract fees, due diligence fees and more. These fees are sometimes hidden in the fine print, so comb through everything carefully before moving forward. Treat opportunity cost like a real cost –  Banks routinely take up to two weeks to review a loan application and, if approved, another 1560 days to fund the loan. For executives running a business, that’s time they could have spent generating sales and growing the company.

The lowest APR doesn’t always provide the best financing option when you take into account the loss of time spent elsewhere. The adage that time is money still holds today. Look for lenders, online and off, that can move at the speed of today’s business and expedite the application process so you can spend your time making money, instead of jumping through hoops to borrow it.

People are financing without knowing it –  Financing occurs far more often than we realize. Giving your customers a 2 percent discount for paying within 10 days rather than 30 days is really a 2 percent finance charge equivalent to a 73 percent APR.

In another scenario, if you’re offering your customers a 10 percent discount to pay immediately or pay full price on Net-30 terms, you may have a better alternative. The alternative would be to get financing which may cost you 4 percent for the month and then receive the full payment in 30 days. In this case, financing saves the company 6 percent. This is how thinking about discounts as financing will pay off in the long run.