Loan costs

Business loan costs and APR, explained

Business loan pricing varies enormously depending on whether the facility is secured or unsecured, and APR alone doesn't always capture the full picture for shorter-term products. Here's what actually drives the cost.

Category: Costs & pricing

Product: Business Loans

Secured loan rates: Often lower than unsecured, reflecting lower lender risk
Unsecured loan rates: Typically higher, priced on trading strength
Arrangement fee: Commonly 1%–5% depending on lender
Term: From a few months to 15 years

Secured vs unsecured pricing

Secured loans, backed by property or other business assets, generally price lower because the lender has recourse if things go wrong. Unsecured lending relies on trading history, cash flow and personal guarantees, and prices accordingly — often at a meaningful premium for younger or thinner-margin businesses. The right structure depends on whether you have suitable assets to offer and how much you value keeping them unencumbered.

Why APR can be misleading on short-term facilities

APR annualises the cost of borrowing to allow comparison, but on a facility repaid over a few months rather than years, the APR figure can look alarmingly high even though the actual pounds-and-pence cost is modest. Always ask for the total repayable amount in cash terms alongside any APR quoted.

Arrangement fees and how they're charged

Arrangement fees typically range from around 1% on straightforward secured facilities to considerably more on higher-risk unsecured lending. Some lenders deduct the fee from the amount advanced, meaning you receive less than the headline loan amount — always check the net figure landing in your account.

Repayment structure and its cost impact

Loans repaid via fixed monthly instalments are the most predictable to budget for. Merchant cash advances and revenue-based facilities instead take a percentage of card sales, which can suit seasonal businesses but makes the effective cost harder to compare directly against a term loan.

Early repayment and settlement costs

Some business loans charge a settlement fee or retain a portion of interest if repaid early, particularly fixed-fee products where the total interest is calculated upfront rather than daily. Check this before signing if you expect cash flow to improve and want the option to clear the balance early.

Frequently asked

Why does my unsecured loan quote look more expensive than a mortgage rate?

Unsecured lending carries more risk for the lender since there's no specific asset to fall back on, so pricing reflects that, alongside typically shorter terms which compress the cost into fewer years.

Is APR the best way to compare business loans?

It's a useful starting point but not the whole story on short-term or fee-heavy products. We always translate quotes into a total cost in pounds so you're comparing genuinely like for like.

Can I reduce the cost by offering security?

Often yes — offering property, invoices or other business assets as security typically unlocks a lower rate than an unsecured facility, provided you're comfortable with the asset being at risk.

Will early repayment save me money?

It depends on the product. Some loans charge daily interest so early repayment genuinely saves money; others calculate a fixed total interest cost upfront regardless of when you repay, so check before assuming a saving.

Do all lenders charge an arrangement fee?

The large majority do, though the amount varies significantly. It's one of the first figures we compare across a lender panel on your behalf.

Compare business loan costs side by side

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