Quick answer
The total cost of a business loan is everything you repay minus the amount you actually receive. Add up every repayment over the term, plus upfront and ongoing fees and any balloon, then subtract the money paid to you. Comparing offers on that dollar figure, alongside the monthly equivalent repayment and early payout terms, is fairer than comparing headline rates or weekly repayments.
Key points
- Total cost = everything repaid minus what you actually receive.
- Include every fee, any balloon and the full term.
- Convert all repayments to the same frequency.
- A lower repayment can hide a higher total cost.
- Formula
- Total repaid + fees − funds received
- Also compare
- Monthly equivalent, early payout
- Common trap
- Lower repayment, longer term, more cost
- Tool
- Loan offer comparer
Two business loan offers rarely arrive in the same format. One quotes weekly repayments over 12 months with a fee taken out upfront. Another quotes monthly repayments over three years with a balloon. Putting them side by side is hard unless you reduce both to the same thing. That thing is the total cost in dollars.
How do you work out total cost?
Use this simple formula:
Total cost = (all repayments + all fees + any balloon) − money you actually receive
Step by step:
- Count the repayments. Weekly over a year is 52; fortnightly is 26; monthly is 12.
- Multiply by the repayment amount.
- Add every fee: establishment, monthly account fees over the term, line fees, documentation, valuation, legal.
- Add any balloon or final lump sum.
- Subtract the amount paid to you. If a fee is deducted from the payout, use the smaller net figure.
A worked comparison
Illustrative example. A Canberra IT services firm needs $50,000. Both offers below are illustrative only.
| Offer A | Offer B | |
|---|---|---|
| Term | 12 months | 36 months |
| Repayment | $1,150 weekly | $1,820 monthly |
| Number of repayments | 52 | 36 |
| Total repayments | $59,800 | $65,520 |
| Upfront fee | $1,500 deducted from payout | $990, added to the loan and built into repayments |
| Money received | $48,500 | $50,000 |
| Total cost | $11,300 | $15,520 |
| Monthly equivalent | About $4,983 | $1,820 |
Offer A costs less in total but asks for nearly three times the monthly outgoing. Offer B is easier on cash flow but costs more. Neither is wrong; the question is which the business can carry. The loan offer comparer does these sums for you.
What should you include in the comparison?
| Include | Why |
|---|---|
| Every scheduled repayment | The core of the cost |
| Upfront fees | Often a big share of short-term loan costs |
| Ongoing fees | Monthly account or line fees add up over long terms |
| Balloon or residual | Owed at the end, part of the cost |
| Security costs | Valuation, legal, registration, discharge |
| Broker fees | If charged separately |
What does total cost leave out?
Total cost is the best single number, but check these too:
- Monthly equivalent repayment. Can the business carry it? See repayment frequency.
- Early payout terms. If you might repay early, a loan with a lower total cost but heavy early payout charges could end up costing more. See early payout.
- Security and guarantees. A cheaper loan secured on your home carries a different kind of cost. See guarantees and security.
- Flexibility. Can you redraw, make extra repayments or pause?
Why do headline figures mislead?
- A low weekly repayment sounds affordable but adds up across 52 weeks.
- A long term lowers repayments but often raises total cost.
- A fee deducted upfront means you get less money for the same repayments.
- A factor rate isn’t comparable with an annual rate.
- A balloon makes repayments look small until the end.
Our guide to what drives business loan pricing explains why offers differ so much.
How should you use the result?
Rank offers by total cost, then strike out any whose monthly equivalent the business can’t carry in a slow month. Among those left, weigh flexibility, security and early payout terms. That usually leaves one clear choice.
How do you compare a loan with not borrowing at all?
Total cost also helps with a more basic question: should you borrow at all? Compare the dollar cost of the loan with what the money will earn or save:
| Purpose | What to compare the cost against |
|---|---|
| Equipment | Extra jobs or output, labour saved |
| Stock | Margin on the extra sales, supplier discount |
| Marketing | Expected new customers and their value |
| Tax debt | ATO interest and the cost of enforcement action |
| Hiring | Extra revenue the new person can bring in |
| Cash flow gap | Penalties, lost discounts or lost work if unpaid |
If the benefit is comfortably larger than the total cost, and the repayments fit cash flow, borrowing makes sense. If the benefit is uncertain or only slightly larger, it may be worth waiting, borrowing less or finding another way.
The same comparison works between offers: a dearer loan that settles in time to win a contract can beat a cheaper loan that arrives too late.
Let us line the offers up for you
If you’ve got offers that look impossible to compare, or you’d like offers to compare, we can help. Enquiring doesn’t put anything on your credit file; a check only comes up once you decide to go ahead. We don’t sell your details to a crowd of lenders. A real person sets the options out in dollars, explains the trade-offs and lets you choose.
Please be accurate on the form so the options we compare are ones you can actually get. Start your enquiry, or run the numbers first with the loan offer comparer and then ask us to compare offers.
Frequently asked questions
Why not just compare interest rates?
Business loans are priced in different ways: annual rates, factor rates, flat fees and combinations. Fees and terms also vary. The total dollar cost captures all of it in one number you can compare.
What's a factor rate?
A multiplier used by some short-term lenders to set the total repayable. For example, a factor of 1.2 on $50,000 means repaying $60,000. It isn't an annual rate, so compare it in dollars and by term.
Does a longer term cost more?
Usually, in total, because you're borrowing for longer. The repayment is lower, but the dollar cost is often higher. Compare both.
Should I include fees deducted from the loan?
Yes. If a fee is taken from the amount paid out, you receive less money but repay the full amount, which makes the true cost higher.
Is the cheapest loan always the best?
Not always. Flexibility, early payout terms, speed, security required and repayment style all matter. Use total cost as the starting point, not the only factor.