How Do I Compare Business Loan Rates UK?
Callum Pond
Manager · May 26, 2024 · 6 min read
Comparing business loan rates correctly is more complicated than comparing two headline percentages. Arrangement fees, the difference between flat rates and APR, total repayable over the term, and early repayment charges all affect the true cost. This guide gives you the framework to compare offers on a like-for-like basis.
Ready to compare your options?
Check your eligibility across 100+ UK lenders in 60 seconds.
The metrics that actually matter
Total amount repayable is the most reliable comparison metric. Ask every lender to confirm the total you will have paid by the end of the agreed term, inclusive of all interest, arrangement fees, and any other charges. Two loans with identical rates but different arrangement fees will have different total costs. Total repayable puts them on the same footing.
APR (Annual Percentage Rate) is the standardised interest rate that accounts for fees as well as interest. It allows direct comparison between loans from different lenders on the assumption you hold the loan for the full term. Always ask for the APR in addition to the headline rate.
Flat rates, APR, and the common confusion
A flat rate is calculated on the original loan amount for the full term. An APR is calculated on the declining balance. This means a flat rate of 6% is not the same as 6% APR, because the actual average balance decreases as you make repayments. The rough conversion is that a flat rate equates to approximately double the APR over a typical term.
Asset finance rates are commonly quoted as flat rates: a 5% flat rate on a 3-year hire purchase agreement is roughly equivalent to a 9% to 10% APR. Always ask for the APR equivalent when comparing asset finance against a term loan to ensure you are comparing like for like.
"The three numbers that matter when comparing business loans: total amount repayable, APR, and any early repayment charge. Everything else is secondary."
- Callum Pond, Manager
Frequently Asked Questions
Should I choose the lowest monthly payment or the lowest total cost?
Always focus on total cost rather than monthly payment. A longer term reduces monthly payments but increases total interest paid. Choose the shortest term your cash flow can comfortably service to minimise the total cost of the loan.
The bottom line
Spark Finance presents all offers showing APR and total repayable side by side, making comparison straightforward. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
Callum Pond
Manager
Callum manages a portfolio of commercial finance cases at Spark Finance, specialising in structuring lending for growth-stage businesses and management buyouts. He has arranged facilities from short-term working capital loans to multi-million pound secured deals.
