How to select business finance without high interest rates
The cheapest business finance is rarely the one with the lowest advertised rate. A 0.77% monthly rate carrying a large establishment fee and a three-month minimum period can cost more over four months than a higher rate with neither. Compare the total dollar cost of each offer, including every fee, over the period the money is actually needed.
The advertised rate is the least reliable number in business finance. Not because lenders are lying about it, but because it is the one number they choose, and it is quoted on bases that are not comparable.
Three bases, none of which compare directly
Monthly rate. Common in private lending. 1.5% per month.
Annual percentage rate. Common in bank and consumer lending. 14% p.a.
Factor rate. Common in unsecured cash-flow lending. 1.18 — meaning you repay $118,000 on $100,000 regardless of how quickly.
You cannot compare these in your head, and a lender quoting one of them is not obliged to convert it into the others. The only way through is to convert all of them into total dollars over the period you actually need the money.
A worked example of why the rate misleads
$200,000 for four months.
Lender A: 0.77% per month, 2% establishment fee, three-month minimum period, $1,500 discharge fee. Lender B: 1.50% per month, $2,500 flat establishment fee, nothing else.
On the rate alone, A wins by half. Do the arithmetic in dollars over four months and the gap narrows sharply. Shorten it to six weeks and it reverses entirely, because A’s three-month minimum means you pay for three months either way.
The twelve fees to ask about
Establishment. Legal and disbursements. Valuation. Application or assessment. Minimum interest period. Prepaid interest and whether it is refunded. Line or management fee. Extension. Early repayment. Discharge. Default interest. Broker or introducer commission added to the balance.
A lender who will not give you all twelve in writing before you sign has told you something useful.
The three that catch people most often
The minimum interest period. Repay in week two, pay for three months.
Unused prepaid interest. Deducted at settlement, kept by many lenders when you repay early.
The extension fee. Charged when your exit slips a fortnight — which, in this kind of lending, it frequently does.
Why we do not publish a rate
Because we would be playing the same game. Private lending is genuinely risk-priced per file — security type, LVR, position on title, quality of the exit, and how much documentation exists all move the number. Any single advertised figure is our best-case file on a billboard, or a number that changes the moment you apply.
What you get instead is a real figure in writing, on a Letter of Offer, within about two business hours of the first phone call, before you have paid anything or committed to anything.
Reviewed by Jason Brockmuller, Joint Chief Executive