Business loans
Business loan price comparison: how to compare the real cost
Business loan price comparison should answer a practical question: what will your business pay to receive the money it needs, over a repayment schedule it can afford? A low advertised rate does not answer that on its own. Fees, the way interest is calculated and the length of the agreement can change the outcome. This guide explains how to compare business loans using a consistent set of figures, with an illustrative comparison you can adapt to your own written offers.
Quick answer
For a useful price comparison of business loans, start with the same net amount received and, where possible, the same repayment term. Compare all scheduled repayments, compulsory upfront charges, interest calculations and settlement terms. Calculate the total borrowing cost as all required payments minus the net cash made available, without counting the same fee twice. Then check affordability, security and eligibility: the lowest total price is not necessarily the right loan for your business.
Key points
- Compare personalised written offers rather than assuming an advertised starting rate is available to you.
- Net cash received, total borrowing cost and repayment timing are three different measures.
- A flat interest rate, a reducing-balance rate and a fixed fee are not interchangeable.
- A longer term can lower monthly repayments while increasing the total cost.
- Compare guarantees, security and early-settlement terms alongside price.
What does price comparison for business loans actually compare?
A meaningful comparison looks at the price of obtaining a defined amount of funding for a defined period. First establish the funding gap: the amount your business needs after allowing for available cash, expected receipts and essential working capital. Comparing a £20,000 loan with a £35,000 facility simply because both have a prominent interest rate can lead you towards unnecessary debt.
Next distinguish the advertised product from your actual offer. The final amount, pricing and conditions may depend on trading history, turnover, existing borrowing, credit records and the lender’s assessment. An initial eligibility indication or a quotation is not a guarantee of approval or an unconditional commitment to fund.
Business loan price comparison is also different from a whole-market ranking. A comparison service may work with a selected panel and have commercial relationships with providers. Ask which lenders and products are included, how results are ordered and whether fees or commissions affect the journey. Do not assume the first result is the cheapest available anywhere.
Start your business loan comparison with consistent amounts and terms, then use our business loan calculator to test repayment scenarios. Our cheap business loans guide explains why the lowest headline rate is not always the lowest total cost.
The figures you need before comparing business loan prices
Ask each lender for a dated written offer and a repayment schedule. Record the gross advance, any money withheld before funding, fees payable separately and the amount that will actually reach your account. If you need £30,000 for a project but receive £29,400 after deductions, you still have a £600 funding gap.
Check whether charges are compulsory, optional, refundable or conditional. A valuation or legal bill may apply to a secured facility, while an arrangement fee might be deducted, added to the balance or paid separately. Establish whether interest is charged on a financed fee. An item described as a fee can therefore affect both the cash you receive and the later repayments.
Keep normal scheduled costs separate from events that may or may not happen. Late-payment charges are not part of an on-time repayment illustration, but they still matter when assessing risk. Likewise, obtain a separate early-settlement scenario if you expect to repay before the agreed end date.
- Gross advance and net cash received, including deductions and upfront payments.
- Term, first payment date, payment frequency and any final balloon payment.
- Every scheduled repayment and the total payable over the full term.
- Interest basis, fixed or variable pricing, and all compulsory charges.
- Early-settlement method, default charges, security and personal guarantees.
- Offer expiry date and any outstanding conditions before release of funds.
Business loans price comparison: a worked £30,000 example
The following figures are invented illustrations, not live quotes, lender offers or representative examples of products available through Shareholder. All three options provide £30,000 net cash. The example assumes equal monthly payments, no other charges and repayment exactly as agreed. It deliberately separates the gross advance from the money available to spend.
For Offer A, the lender advances £30,300 and deducts a £300 arrangement fee, leaving £30,000. Twelve repayments of £2,750 total £33,000. The borrowing cost against the net cash received is £3,000. Do not add the deducted £300 again: its effect is already reflected in the difference between the £33,000 paid back and the £30,000 received.
Offer B provides £30,000 with no upfront fee and requires £33,600 in repayments, so its total cost is £3,600. A and B have the same term and net proceeds, making their £600 cost difference straightforward to identify. That does not settle questions about flexibility or guarantees, which must be compared separately.
Offer C has the lowest monthly payment but runs for twice as long. It costs £6,000 overall, compared with £3,000 for A. It is not a like-for-like rate comparison because the terms differ. It illustrates a separate affordability choice: paying less each month can mean paying more over the life of the loan.
| Measure | Offer A | Offer B | Offer C |
|---|---|---|---|
| Gross advance | £30,300 | £30,000 | £30,000 |
| Fee deducted from advance | £300 | £0 | £0 |
| Net cash received | £30,000 | £30,000 | £30,000 |
| Repayment term | 12 months | 12 months | 24 months |
| Monthly repayment | £2,750 | £2,800 | £1,500 |
| Total scheduled repayments | £33,000 | £33,600 | £36,000 |
| Total cost against net cash | £3,000 | £3,600 | £6,000 |
Read next:Model repayments with the business loan calculator
Why headline interest rates can distort price comparison
A percentage only becomes useful when you know what it measures. Reducing-balance interest is calculated on the outstanding principal, which normally falls as capital is repaid. Flat interest is calculated against the original loan amount for the stated period. Two loans displaying the same numerical rate can therefore produce different repayment totals.
For example, a £30,000 loan priced at a hypothetical 10% flat per year for two years would have £6,000 interest before fees: £30,000 multiplied by 10% multiplied by two. That is not the same calculation as 10% annual interest on a reducing balance with regular capital repayments. It must not be described as a 10% APR merely because the flat percentage is 10%.
A fixed fee or factor rate needs similar care. A factor of 1.20 on £30,000 means £36,000 to repay before any separate charges. The £6,000 difference is 20% of the original advance over the agreement, not automatically a 20% annual rate. The payment dates and duration affect its annualised cost.
Where an APR is provided, check the assumptions and included charges. If different offers use different pricing conventions, ask for full cash-flow schedules or a consistently calculated annualised comparison. Do not convert a monthly rate into a comparable annual figure simply by multiplying by twelve, or treat the result of a simplified calculator as the lender’s contractual APR.
Read next:Understand how business loans work
Compare fees and early repayment, not just full-term cost
The cheapest business loan over its full term may not be the cheapest if you settle after six months. Some agreements reduce future interest on settlement; others have minimum interest periods, settlement fees or a fixed charge that does not reduce in the way you expect. The contract, rather than the description of the product, determines the calculation.
Ask both lenders for an illustration using the same settlement date. Add the payments already made, the settlement balance and any separately paid compulsory fees, then subtract the net cash originally received. If you are refinancing another loan, also include the existing lender’s settlement amount and any overlapping interest in the overall refinancing decision.
Check ongoing or facility charges if the product is not a simple term loan. An unused revolving limit, repeat drawdowns or a renewal may create costs that do not appear in a single repayment example. Keep optional services separate so that you can compare the required borrowing cost and decide independently whether an add-on is worthwhile.
Price versus affordability: can your business meet the repayments?
Total cost measures price; affordability depends on when cash is available. A business can be profitable on paper and still struggle with a repayment due before customers pay. Put the proposed payment dates into a cash-flow forecast alongside wages, rent, tax, stock and existing finance commitments.
Consider a simplified month with £24,000 in customer receipts, £19,000 of operating payments and £2,000 of existing debt repayments. That leaves £3,000 before new borrowing repayments and before any other omitted cash movements. Offer A’s £2,750 payment would leave only £250. A delayed invoice or an unexpected repair could remove that headroom.
Stress-test at least one weaker month and allow for seasonal trading, not just an annual average. A longer repayment term might create breathing space, but it also keeps the debt outstanding longer. If none of the options remains affordable under a realistic downside scenario, reducing the project size or delaying borrowing may be preferable to selecting the least expensive unaffordable loan.
Read next:Assess business loan affordabilityBusiness loans with faster funding options
Price comparison for unsecured and secured business loans
Secured and unsecured business loans can have different costs and risks. A secured lender takes security over specified assets, which may be at risk if the business defaults. Security can support pricing but may also introduce valuation, legal or registration costs and additional steps before funds can be released.
Unsecured business loans do not require specified business assets as collateral for the loan, but a lender may still require a personal guarantee. That can make a director personally responsible if the company cannot repay. An unsecured label is not a promise that the director’s personal finances are protected.
Put these obligations beside the price rather than hiding them in a footnote. Compare the scope and cap of a guarantee, which debts it covers and how it ends. Seek independent legal advice before committing to a guarantee or security arrangement. A small cost saving should not be treated as automatically outweighing a substantial additional personal obligation.
Read next:Compare unsecured business loansExplore secured business loansSecured versus unsecured business loans explained
Sources:British Business Bank, Business loansBritish Business Bank, A guide to personal guarantees for business borrowing
How to carry out a business loan price comparison
Start with a short written brief: funding purpose, net amount required, latest useful funding date and an affordable repayment range. Use the same information when requesting quotes. Changing the borrowing amount or the requested term halfway through the process makes the results harder to interpret.
Screen for eligibility before submitting multiple full applications. Ask which credit checks will be used and at what stage, including whether directors’ records will be checked. Do not assume every eligibility tool uses a soft search or that every initial result reflects the final lending decision.
Once you have written offers, build a comparison sheet using the measures above. Record what remains uncertain and ask the lender to confirm it. Save the offer version and expiry date, because an indicative price that has expired is not a reliable basis for a later borrowing decision.
- Define the funding need and compare the same net proceeds.
- Match the term and repayment frequency where possible.
- Record total repayments, compulsory fees and the interest calculation.
- Check a common early-settlement date if that matters to your plan.
- Test repayments against a realistic cash-flow forecast.
- Read guarantees, security and release conditions before signing.
Common mistakes when comparing business loans
Comparing only the monthly payment can favour a longer, more expensive loan. Comparing only total pounds can hide the fact that one agreement funds the business for much longer. Use both measures, and explain any remaining differences rather than claiming unlike offers are equivalent.
Another mistake is comparing a revolving credit facility, merchant cash advance and term loan as though they have the same repayment structure. A sales-linked repayment can move with revenue, while interest on a credit facility may depend on how much you draw and for how long. Model a realistic usage pattern and identify the assumptions instead of assigning each product a misleading single rate.
Finally, avoid treating urgent funding as a reason to skip the detail. Ask when funds can actually clear, which documents are outstanding and whether the price changes after underwriting. Approval speed, a low advertised rate and a comparison result are not substitutes for an affordable, understood agreement.
Read next:Understand merchant cash advancesPrepare for a fast unsecured business loan application
Common questions
- What is the best way to do a price comparison of business loans?
- Compare personalised offers using the same net cash received and repayment term where possible. Record all scheduled repayments, compulsory fees, settlement terms and security obligations. Test the payment schedule against your cash flow before deciding.
- Is the lowest interest rate always the cheapest business loan?
- No. Fees, the rate calculation, the repayment term and settlement conditions can change the total price. An advertised starting rate may also differ from the rate offered after the lender assesses your business.
- How do I calculate the total cost of a business loan?
- Add all required repayments and compulsory fees paid separately, then subtract the net cash made available to your business. Avoid counting a fee twice when it has already been deducted from the advance or included in repayments. Calculate contingent charges and early-settlement scenarios separately.
- Can I compare unsecured business loans with secured loans?
- Yes, but compare security and personal guarantees as well as price. Secured borrowing can put specified assets at risk. Unsecured borrowing may still require a director’s personal guarantee. Include compulsory legal or valuation costs where applicable.
- Does using a business loan comparison service guarantee approval?
- No. Comparison and eligibility indications do not guarantee a loan or its final terms. The lender assesses the application, affordability and supporting information. Ask what credit checks will take place before submitting an application.
Sources
Sources were checked on 25 October 2026. A source check confirms what these publications said on that date; it is not a financial review of any product.
- Business loans — British Business Bank
- A guide to personal guarantees for business borrowing — British Business Bank