The rate is not the cost. Where the arrangement fee sits, whether the rate is quoted flat or on a reducing balance, and how long you take all move the real number, often by thousands. This works out what a UK business loan actually costs and shows you the full repayment schedule.
Business loan calculator
Built for UK business lending. Handles reducing balance, flat rate and factor rate quotes, arrangement fees wherever they sit, capital repayment holidays and balloon payments. Nothing is sent anywhere and nothing is stored.
1. The loan
2. The fees
3. Repayment shape
Year by year
Why the headline rate is not the cost
Two loans quoted at the same rate can cost very different amounts, because the rate is only one of five or six numbers that matter. On a five year facility a 2% arrangement fee adds roughly the same again as three months of interest, and it is charged whether the loan runs its full term or not. Fees are the part borrowers skim past and the part that most often decides which of two offers is actually cheaper.
The other thing a rate hides is how much you receive. If the fees come off the advance, a £100,000 facility with £5,000 of fees puts £95,000 in the account but charges interest on £100,000. The cost per pound of usable cash is what you are really buying, and it is set out below.
Flat rates and factor rates look cheaper than they are
UK business lending is quoted three different ways and they are not comparable on their face.
An annual rate on the reducing balance charges interest only on what you still owe, so the interest element falls with every payment. This is how bank term loans and most secured lending work.
A flat rate charges interest on the original sum for the whole term, even though you are steadily paying that sum down. Because you have use of less than half the money on average across the term, the true cost is roughly double the headline. A 5% flat rate over five years works out near 9.5% on a reducing balance basis. Asset finance and hire purchase are commonly quoted this way.
A factor rate drops interest altogether and states a multiple. At 1.2 you repay £1.20 for every pound. There is no time value in that figure at all, so the same factor rate is twice as expensive over six months as it is over twelve. Short term and revenue based products use it, and it is the convention that makes cost comparison hardest.
Switch the quote type at the top of the calculator and the illustrative annual rate moves while the cash cost stays the same. That gap is the whole reason the conventions exist.
How this compares with other business loan calculators
Most business loan calculators take three inputs, being amount, rate and term, and return a monthly payment. That is an arithmetic exercise rather than a costing, because it omits every variable that decides which of two real offers is cheaper. Here is what this one does differently.
| What it handles | This one | Most others |
|---|---|---|
| Monthly payment on a reducing balance | Yes | Yes |
| Flat rate quotes converted to a comparable annual rate | Yes | No |
| Factor rate quotes converted to a comparable annual rate | Yes | No |
| Arrangement fee included in the cost of the loan | Yes | Rarely |
| Choice of fee added to the balance, deducted from the advance, or paid separately | Yes | No |
| Broker fee, with optional VAT | Yes | No |
| The cash you actually receive after fees | Yes | No |
| Annual rate calculated by the present value method used in UK credit regulation | Yes | No |
| Capital repayment holiday at the start | Yes | No |
| Balloon payment at the end | Yes | No |
| Weekly and quarterly repayment schedules | Yes | Rarely |
| Full payment by payment schedule | Yes | Sometimes |
| Cost per pound of usable cash | Yes | No |
| Illustrative cost after corporation tax relief | Yes | No |
| Denominated in pounds, with UK fee and tax conventions | Yes | Varies |
The one that matters most is the second and third row. A lender quoting a flat rate and a lender quoting a reducing balance rate are not offering what the numbers suggest, and until both are expressed the same way you cannot tell which is cheaper. That conversion is the whole reason this page exists.
Where the fee sits changes the answer
An arrangement fee added to the balance is borrowed money, so it accrues interest for the life of the loan and raises the payment. Deducted from the advance, it costs no interest but you receive less than you asked for, so you may need to borrow more to land the sum you actually need. Paid separately, it comes out of working capital on day one, which is the cheapest of the three on paper and the hardest on cash flow.
Run the same deal three ways using the handling selector. The total cost figure moves and so does the illustrative annual rate, which is why asking a lender where the fee sits is a fair question rather than a pedantic one.
Repayment holidays and balloon payments
A capital repayment holiday keeps the early payments low by covering interest only, then repays the whole balance across a shorter remaining period, so the later payments are higher and the total interest rises. A balloon payment does the same thing at the other end: low instalments, then a large sum due with the last one. Both are legitimate tools for matching payments to when income arrives, and both cost more overall than a straight amortising loan. The calculator shows exactly how much more.
The annual rate here is illustrative
The annual percentage rate shown is calculated using the present value method set out in UK consumer credit regulations, applied to the cash flows you have entered, so it is directly comparable between two quotes you put through it. It is not a lender quotation and it is not a representative rate for any product. Lenders make their own assumptions about drawdown timing and charges, so a lender’s own figure may differ from this one.
Where the loan is quoted flat or by factor rate, this figure is the most useful output on the page, because it puts a short expensive facility and a long cheap one on the same scale for the first time.
Paying it off early may not save what you expect
On a reducing balance loan, settling early normally saves the interest you have not yet accrued, though some lenders keep one to three months of it or charge a percentage of the outstanding balance. On a flat rate agreement you are usually rebated part of the charge rather than all of it. On a factor rate facility the total is fixed at the outset, so repaying faster shortens the term without reducing the cost at all unless the funder offers a discretionary discount.
Ask for the early settlement terms in writing before you sign, not after. Where the borrower is a limited company, or a sole trader or partnership borrowing more than £25,000 for business purposes, there is no statutory rebate to fall back on. Whatever the contract says is what applies.
The cost after tax relief
Interest and the incidental costs of arranging business borrowing are normally deductible against taxable profit, so the real cost to a profitable business is lower than the cash cost. The optional figure in the calculator applies your marginal rate to the total, which is an illustration and nothing more. It assumes the borrowing is wholly for business purposes, that the business has enough profit to use the relief, and it ignores the timing rules and the way arrangement fees are spread for accounting purposes. Confirm the treatment with your accountant before relying on it.
What this does not include
- Default interest, arrears charges or extension fees if you fall behind or go past the term.
- Early settlement charges, or any minimum interest period.
- Whether a lender will actually offer that amount, at that rate, over that term.
- Personal guarantees, debentures or charges over assets, none of which show up in a monthly payment but all of which are part of the deal.
- Variable rates. Everything here assumes the rate holds for the full term.
Other ways of borrowing
If the borrowing is against invoices, property or equipment rather than the business as a whole, a term loan may not be the cheapest route. Our merchant cash advance calculator converts a factor rate on card takings into an annual figure, the commercial mortgage affordability calculator covers property term debt, and the payroll funding calculator deals with funding a wage bill against unpaid invoices.
If the loan is intended to replace borrowing you already have, pricing it on its own only tells you half the story. Our business loan consolidation calculator compares a single new facility against your existing debts using their settlement figures, works out the blended rate you are paying now, and flags which facilities are cheaper left where they are.
Get it priced across the market
Rates, fees and appetite differ by lender, by sector and by how your last two years of accounts read, and none of it is published. We hold that criteria across the market, so rather than guessing at the inputs, send us the requirement and we will come back with what is actually available.
Or try our other calculators.
This calculator is provided for illustration and general information only. It is not financial, tax or legal advice, not a quotation, and not an offer of finance. Figures depend entirely on the terms you enter and the annual percentage rate shown is illustrative rather than a lender figure. Bolton Business Finance Ltd is a commercial finance broker and not a lender, and is not authorised or regulated by the Financial Conduct Authority. We arrange non-regulated, business purpose commercial finance only, meaning lending to limited companies, and to sole traders and partnerships where the facility exceeds £25,000 and is wholly or predominantly for the purposes of their business. We do not arrange regulated consumer credit. Always read the facility agreement in full before signing.