Quick answer
To compare business loan offers fairly, convert each into total dollars repaid over the amount borrowed, including every fee and charge, for the term you expect to use. Then compare repayment size and frequency against your cash flow, check early repayment terms and what happens if repayments are missed. The cheapest offer on paper is not always the best fit for your business.
Key points
- Convert every offer into total dollars repaid
- Include all fees: establishment, legal, monthly and exit
- Check repayment frequency against your cash flow
- Read early repayment and default terms
Why comparing is harder than it looks
Business loans are priced in many different ways. One lender quotes an interest rate. Another quotes a fixed fee. Another uses a factor that multiplies the amount borrowed. Some add establishment fees, monthly account fees, legal costs, early repayment charges or exit fees. Two offers that look similar on the surface can differ by thousands of dollars once everything is counted.
The one number that matters most
Total cost in dollars is the fairest comparison: everything you will repay, minus the amount you actually receive, for the period you expect to use the money. Ask each lender for the total amount repayable and a full list of fees, then calculate the cost yourself. The repayment calculator turns that total into daily, weekly and monthly repayments so you can see how it feels in practice.
Fees to look for
Establishment or application fees charged at the start. Legal and documentation fees, especially on property-secured loans. Monthly or annual account fees. Line fees on unused limits for lines of credit. Early repayment or break fees. Exit, discharge or caveat withdrawal fees. Default fees and default interest if a repayment is missed. Not every loan has all of these, but every fee you leave out of the comparison makes it less accurate.
The amount you actually receive
Some loans deduct fees, or prepaid interest, from the advance. A loan of a given amount may put noticeably less into your account. Compare the cash you receive, not the headline loan amount, against the total repayable.
Repayment frequency and size
Daily repayments suit businesses paid daily but demand a buffer. Weekly repayments line up with many wage cycles. Monthly repayments suit businesses paid on invoice terms. A cheaper loan with daily debits may strain cash flow more than a slightly dearer loan with monthly repayments. Compare the repayment as a share of your deposits for each offer.
Early repayment terms
If there is any chance you will repay early, from a refinance, a sale or a strong season, early repayment terms can change the comparison completely. Some loans reduce the remaining cost when repaid early; others require the full agreed cost regardless; some charge an additional fee. Ask specifically and get the answer in writing.
Flexibility and fit
Some features have value that is hard to price: the ability to extend the term if a refinance is delayed, interest that can be added to the loan instead of paid monthly, a lender that will talk if something goes wrong. On property-secured loans, terms can be flexible enough to keep the loan as long as you need it. Weigh these alongside the dollars.
Questions to ask every lender
What is the total amount repayable? What fees apply, and when? How much will I actually receive? How often are repayments taken? What happens if I repay early? What happens if I miss a repayment? What security are you taking? Reputable lenders answer quickly and in writing. Hesitation is a warning sign; see our guide on business loan scam warning signs.
An illustrative comparison
An owner received two offers for the same amount. Offer A quoted a lower headline figure but deducted fees from the advance and required daily repayments over six months. Offer B looked dearer but paid the full amount, had monthly repayments over twelve months and allowed early repayment with a reduced cost. Converted to total dollars and repayment share, Offer B was more affordable for the business’s monthly invoice cycle, and cheaper if repaid early from an expected contract payment.
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Frequently asked questions
Why not just compare interest rates?
Many business loans are priced with fees, factors or a mix, so headline rates do not capture the full cost.
What is a factor rate?
A multiplier applied to the amount borrowed to set the total repayable. Convert it to dollars to compare with other offers.
Do early repayment discounts matter?
Yes. Some loans reduce the cost if you repay early; others require the full cost regardless.
Should I always take the cheapest offer?
Not if its repayments are too heavy for your cash flow or its terms are inflexible. Fit matters as much as cost.
Can I ask a lender to explain their costs?
Absolutely. A reputable lender will set out every cost in writing.
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