Business loan rates and fees, explained

Why there's no rate advertised on this page

Business loan pricing is set by the lender, for the applicant. Two businesses asking for the same amount can be offered different pricing because their revenue consistency, time trading, industry, existing commitments and credit information differ — and those are exactly the things lenders weigh up when they price risk.

Advertised rates in this market are usually "from" rates: the pricing offered to the strongest applicants, under the most favourable structure. Publish a number like that and it flatters the product while misleading most of the people reading it. Publish a cautious number instead and it overstates the cost for businesses in good shape. Either way, a single figure on this page would tell you almost nothing about what your business would actually pay.

So we do the more useful thing: explain every component of the cost, so that when a written offer lands in front of you, you can read it like someone who's done this before.

The cost components, one by one

Interest rate or factor rate

Lenders in the unsecured space price loans in one of two ways. An interest rate accrues on the balance you still owe — as you repay, the balance falls, and the interest portion of each repayment shrinks with it. A factor rate works differently: it's a fixed multiplier applied to the amount you borrow, which sets the total repayable on day one and doesn't reduce as the balance falls.

The two can't be compared digit for digit. A factor rate that looks modest can cost more over the term than an interest rate that looks larger — and the reverse is also true. The only fair comparison between them is the one covered below: total repayable.

Establishment fee

A one-off charge for setting the facility up. Ask whether it's deducted from the funds advanced or added to the loan balance — the first means you receive less than the headline amount, the second means the fee itself attracts interest. Neither is wrong; you just need to know which one you're agreeing to.

Ongoing and account fees

Some lenders charge periodic account-keeping or administration fees across the term. Individually small, they still belong in the total cost — a facility with no ongoing fees and slightly higher pricing can come out cheaper than the reverse.

Early repayment treatment

This varies between lenders more than almost anything else. Some reduce the remaining cost if you pay the loan out ahead of schedule. Others price on a fixed total that stays the same whenever you clear it. Some offer a discount for early payout. Ask how early repayment is treated before you accept — never assume paying early saves money. The practical side of this is covered on our repayments page.

Default, late and dishonour fees

These apply only if a repayment fails or the loan falls behind, but you should know them before you sign, not discover them afterwards. If a payment is ever going to be missed, contacting the lender before the debit fails is almost always cheaper — and better received — than silence.

Compare offers on total repayable, not the headline number

The headline rate is the least useful figure in an offer. Two things decide what a loan really costs your business. The first is total repayable: everything you will hand back over the life of the loan — principal, interest or factor cost, and every fee. The second is cash-flow fit: whether the repayment amount and frequency sit comfortably inside the way money actually moves through your business.

Term does the heavy lifting here. A short-term business loan can carry higher pricing yet a lower total cost, simply because you're paying for less time. A longer term shrinks each repayment while raising what the loan costs overall. Neither is automatically better — but only the total repayable, read next to the repayment schedule, tells you the truth.

Security shapes pricing too: unsecured lending is generally priced higher than secured lending, because the lender carries more risk without property pledged against the loan. Whether that trade is worth it for your situation is exactly what our guide to unsecured vs secured business loans unpacks.

Seven questions to ask before you accept

1. What is the total repayable — every dollar I'll hand back across the full term?
2. Is the pricing an interest rate or a factor rate, and what does that mean if I repay early?
3. What is the establishment fee, and is it deducted from the advance or added to the balance?
4. Are there ongoing account or administration fees across the term?
5. If I pay the loan out early, does the total cost reduce — and how exactly is the payout figure worked out?
6. What fees apply if a repayment is missed or dishonoured?
7. What is the exact repayment amount, frequency and debit day?

A good specialist will answer all seven without flinching. Hesitation on any of them is information too.

Where the costs appear — and when

Every cost of a loan appears in the written offer, before you accept: the amount advanced, the pricing, each fee, the repayment schedule and the total repayable. That's the document to read slowly. The enquiry itself is free and isn't an application for credit, and nothing proceeds — and nothing is payable — without your acceptance. The full sequence from enquiry to funding is laid out on how it works.