How to understand business loan interest rates

Before applying for a business loan, make sure you know and understand the business loan interest rate you'll be paying.


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Applying for a business loan can do a lot to help your business out of a tight financial spot. Alternative and traditional lenders offer a range of loan products suited to most types of businesses and their financial needs.

There's more to a business loan than just having money deposited into your account and paying it back. Besides possible establishment and monthly fees, lenders will also charge you interest in exchange for providing the loan.

This guide will take you through the different types of interest possible charges when taking out a business loan.

Moula Business Loan

Moula Business Loan

  • Borrow up to $250,000
  • Flexible lending criteria
  • No hidden fees
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100% confidential application

Moula Business Loan

An unsecured business loan with online application and no upfront or early repayment fees.

  • Interest rate type: Fixed
  • Interest rate: from 8.3% p.a. to 29.22% p.a.
  • Comparison rate: from 15.64% p.a. to 52.14% p.a.
  • Establishment Fee: 2% Establishment fee
  • Minimum loan amount: $5,000
  • Maximum loan amount: $250,000
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Compare business loan interest rates

Data indicated here is updated regularly
Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Moula Business Loan
1 to 2 years
2% Establishment fee
A loan of up to $250,000 that can be approved and funded within 24 hours. Available to businesses with 6+ months operating history and $5,000+ monthly sales.
ebroker Business Loan
1 month to 30 years
$0 application fee
Small business loans available between $5,000 and $5,000,000. Get access to 70+ non-bank lenders on this independent platform.
Max Funding Unsecured Business Loan
1 month to 1 year
$0 application fee
An unsecured business loan from $2,000 that offers convenient pre-approval and no early repayment fees.
Valiant Finance Business Loan Broker
3 months to 5 years
$0 application fee
A Business Lending Specialist from Valiant Finance can give you access to competitive business loans from over 70 lenders. Loans between $5,000 and $1 million are available. Request a call – your loan can be funded in 1 business day.
OnDeck Business Loans
6 months to 2 years
3% of loan amount
Apply for up to $250,000 and receive your approved funds in one business day. Minimum annual turnover of $100,000 and 1 year of trading history required.
Prospa Business Loan
3 months to 3 years
3% origination fee
Small business loans are available from $5,000 - $300,000 on terms of up to 3 years. At least twelve months trading history and a monthly turnover from $6,000 is necessary.
ANZ Secured Business Loan
Up to 15 years
Benefit from a low rate when you secure this loan with property and/or business assets. Loans from $10,000 available.
ANZ Unsecured Business Loan
Up to 15 years
Apply for a loan from $10,000 with no security required and benefit from flexible repayment terms.
Westpac Business Loan
1 to 30 years
$0 application fee
Purchase a new vehicle, equipment or support your cash flow with a business finance solution from Westpac.

Compare up to 4 providers

What is interest?

Interest is expressed as a percentage of the principal loan amount and is the additional money you pay to be able to borrow. For example, if you borrow $12,000 with an interest rate of 5.5% p.a. over a period of one year, you will repay $1,030 per month. This means you will pay $30 per month in interest or $360 interest in total. You will repay the lender a total of $12,360, which includes principal and interest, by the end of the loan period.

How does my business profile affect the interest I pay?

The loans terms offered, including the interest you pay, are based on how much of a risk you represent. If your business is new with few valuable assets and a small turnover, you may be paying a higher interest rate than an established business with a bigger profit margin.

Interest rates vary depending on the lender, the lending criteria and the loan type, but in most cases the following factors are taken into account:

  • Your business profile
  • Annual turnover
  • Valuable assets
  • Loan type and purpose
  • Whether the loan is secured or unsecured

What interest is charged on business loans?

Here are some of the terms used to express the different forms of interest charged on various business loan types.

  • Annualised percentage rate (APR).

Besides interest, the lender charges various fees for setting up and providing a business loan. The APR includes all of these fees and the interest you'll be charged and is expressed as a percentage, therefore giving you a more realistic idea of what the loan actually costs.

  • Discount rate.

Invoice factoring companies charge this rate, which is a percentage of the invoice amount being financed. For example, if your invoice value is $3,000 and the discount rate percentage is 5%, you pay the lender $150.

Invoice factoring, a part of invoice financing, involves the finance company having the full invoice ledger and collecting all the debts when they're due.

Compare the invoice financing products below.

Data indicated here is updated regularly
Name Product Min. Loan Amount Max. Loan Amount Loan Term Upfront Fee Filter Values
Timelio Invoice Finance
Up to 4 months
Get up to 100% of the value of your invoices without having to wait for customer payments, and with no minimum turnover or operating history required.
ScotPac Invoice Finance
From 1 year
No set amount
Improve your business cash flow by financing your outstanding invoices. No minimum trading history required, but minimum 12 - month term and $10,000 in invoices.
ScotPac Selective Invoice Finance
1 to 3 months
Finance your unpaid invoices on demand with terms of 1 - 3 months. 95% of invoice is paid upfront, with no minimum trading history required.

Compare up to 4 providers

  • Factor rate.

This is a multiplier applied to the amount loaned on unsecured fixed-term loans. A factor rate is expressed as a figure, such as 1.2 or 1.5. For example, if the loan amount is $10,000 and the factor rate is 1.2, you will repay $12,000 ($10,000 x 1.2).

  • Early repayment fees.

Repaying a loan before the end of the loan term means you stop paying the lender interest. Some lenders charge a fee to compensate for the interest they would've received had you continued to the end of the loan term.

Fixed versus variable interest rates

When you apply for a business loan from a traditional lender, you'll have the option of a fixed or variable interest rate, or a combination of the two, for larger amounts borrowed over longer loan periods.

  • Fixed interest rate. The interest you pay on the principal is fixed for the loan term. This means that fluctuations in the cash rate won't affect your repayments. A fixed rate allows for peace of mind, as you can budget for the same repayment amount each month.
  • Variable interest rate. This rate can fluctuate during the loan term. When the interest rate fluctuates, so do your repayments. If the cash rate drops, business loan rates tend to drop as well, thereby lowering your repayments. However, rates can be raised as well.
  • Combination. This is often offered as an introductory or honeymoon loan period. Lenders offer a fixed rate for the first year or two of the loan, after which the interest rate reverts to the standard variable rate for the rest of the loan period.

When calculating the cost of a business loan, it's important to make sure that the loan product is suited to your business profile and objectives. For example, if you plan to repay the loan quickly, choose a lender that won't charge early repayment fees.

The loan should also suit your business's budget. Besides the interest payments, lenders also charge a series of one-off and monthly fees for providing the loan, all of which can take a chunk out of your budget over the loan period. Make sure you take the interest rate into account when comparing your business loan options.

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2 Responses

    Default Gravatar
    StanMay 29, 2018

    Is 6.1% high for a small bussiness loan of around $80,000

      Default Gravatar
      Ash MunozMay 29, 2018

      Hi Stan,

      Thank you for visiting finder.

      Lenders have two ways of charging an interest rate on your business loan which is either having a Fixed Interest or Factor Rate in which interest is charged on the Principal owing.

      Interest Rate can vary from Lender to Lender; you should compare all the fees that are included in the loan to know if it’s right for the cash flow of your business. Interest Rates are being calculated based also on their assessment of your financials. The 6% Interest Rate that you have is lower than the 12.95% of NAB QuickBiz Loan. You may also compare the other Small Business Loans listed on this page.

      I hope this helps.

      Let us know if there is anything else that we may assist you with.


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