Last reviewed: August 2026. Fees and pricing structures vary by lender and change over time. Always confirm figures in your own loan documents before signing.
The true cost of a business loan is the total of all repayments and fees, minus the amount the business actually receives. That last part matters: a $100,000 facility with a $2,500 establishment fee deducted upfront does not put $100,000 in the bank account, even though repayments are usually calculated on the full $100,000. Working out the true cost of a business loan means requesting four numbers from the lender, then comparing offers on the total repayable rather than the headline rate.
The short version
- The true cost of a business loan is total repayments plus all fees, minus the cash the business actually receives.
- Establishment fees are often deducted from the advance, so a $100,000 loan may deliver $97,500 or less in usable cash.
- A lower repayment is not the same as a lower cost: longer terms reduce the repayment but usually increase the total repaid.
- Business loans generally have no consumer-style comparison rate, so you have to build the comparison yourself from the total repayable.
- Ask every lender the same four questions: total repayable, net amount received, itemised fees, and early repayment treatment.
What are the four numbers to request before signing?
Before comparing any two business loans, request four numbers in writing from each lender: the total amount repayable over the full term, the net amount the business will receive after fees, an itemised list of every fee, and the early repayment treatment. Those four numbers define the true cost of a business loan; the advertised rate alone defines none of it.
In practice:
- Total amount repayable. Every scheduled repayment added together, including any final balloon or residual.
- Net amount received. The cash that actually lands in the account after upfront deductions.
- Itemised fees. Establishment, brokerage, documentation, monthly account and direct debit fees, listed separately.
- Early repayment treatment. Whether paying out early reduces the cost, and what break fees or remaining fixed charges apply.
If a lender cannot or will not put these four numbers in writing, treat that as information in itself.
What is the difference between the gross loan and the net amount received?
The gross loan is the contract amount that interest and repayments are calculated on. The net amount received is the cash deposited after upfront fees are deducted. A $100,000 loan with $2,500 in deducted fees provides $97,500 of usable cash, while repayments are still based on $100,000. Every cost comparison should be measured against the net figure, because that is the money the business can actually spend.
This gap is easy to miss because loan statements and offer documents lead with the gross amount. If the funds are needed for a specific purpose, such as a tax bill or a supplier payment, size the application on the net amount, not the gross, or the shortfall surfaces at exactly the wrong moment.
How do establishment fees work?
An establishment fee (sometimes called an origination, application or setup fee) is a one-off charge for setting up the facility. It is commonly a fixed dollar amount or a percentage of the loan, and many lenders deduct it from the advance rather than billing it separately. Deduction from the advance is the main reason the net amount received is lower than the loan amount.
Two things to check in the offer document:
- How it is charged. Deducted from the advance, added to the loan balance (so you pay interest on the fee), or invoiced separately. Each has a different effect on the true cost.
- What it is calculated on. A percentage fee on a larger refinanced balance can quietly outgrow the fixed fee on a smaller loan.
How is the interest or factor cost calculated?
Business lenders price loans in two broad ways: an interest rate applied to the reducing balance, or a factor rate applied once to the original amount. An interest rate of 12% per annum on an amortising loan charges interest only on what is still owing each month. A factor rate of 1.15 on $100,000 fixes the finance cost at $15,000 from day one, regardless of how quickly you repay. The two numbers are not comparable directly, and a factor rate is usually far more expensive than the same figure read as an interest rate.
If an offer quotes a factor rate, convert it before comparing: our guide to factor rates versus interest rates walks through the conversion, and the effective annual rate method puts any structure on a single comparable footing.
What brokerage and documentation fees apply?
Some loans carry a brokerage fee (paid to an intermediary for arranging the finance) or documentation and legal fees (for preparing security and contract documents, more common on secured and larger facilities). These can be charged to the borrower, paid by the lender, or built into the pricing, and the offer document should say which.
Ask directly: is any brokerage payable by me, is it deducted from the advance, and are documentation or valuation costs charged even if the loan does not proceed? Funding Loop does not charge businesses a fee to compare options; where a lender pays a commission, that arrangement should be disclosed before you decide to proceed.
What do ongoing account fees add up to?
Ongoing fees are small individually and meaningful in total. A $15 monthly account fee is $360 over a 24 month term; a $2 direct debit fee on weekly repayments is over $200 a year. On a small loan these charges can move the true cost by a noticeable margin, so multiply every recurring fee across the full term and add the result to the cost, rather than reading it as a rounding error.
Check the fee schedule for: monthly or annual account fees, direct debit or transaction fees, late payment fees, and any renewal or line fees on facilities that roll over.
What happens if you repay early?
Early repayment treatment splits lenders into two camps. On a true interest-bearing loan, paying out early generally saves the interest that has not yet accrued, although a break or discharge fee may claw some back, especially on fixed rates. On factor rate products, the full fixed cost is usually payable no matter when you repay, so early payout saves little or nothing.
Ask the lender for a written answer to one question: "If I repay this loan in full at the halfway point, exactly how much will I pay in total?" The answer reveals the product's real structure faster than any brochure.
Worked example: the true cost of a $100,000 loan
Here is a fully worked, illustrative example (not a quote, and every figure should be re-checked against a real offer):
| Item | Amount |
|---|---|
| Loan amount (gross) | $100,000 |
| Term | 24 months |
| Interest rate | 12% p.a., monthly reducing balance |
| Monthly repayment | $4,707.35 |
| Total repayments (24 x $4,707.35) | $112,976.40 |
| Establishment fee (deducted from advance) | $2,500 |
| Net amount received | $97,500 |
| Monthly account fee ($15 x 24) | $360 |
| True cost (repayments + fees, minus net received) | $15,836.40 |
The arithmetic: $112,976.40 in repayments, plus $360 in account fees, minus the $97,500 the business actually received, equals $15,836.40. Note that the "12% loan" did not cost 12% of $100,000 ($12,000): the establishment fee and account fees lifted the real cost by nearly a third, and the business only ever had $97,500 to use.
What does the loan cost per dollar borrowed?
Cost per dollar borrowed is the true cost divided by the net amount received. In the example above, $15,836.40 divided by $97,500 is about 16.2 cents per dollar of usable cash over two years. This single number makes very different products directly comparable: a 6 month factor rate advance, a 2 year term loan and a line of credit can all be reduced to cents per dollar per period.
Two cautions when using it. Compare like terms with like (16 cents over two years is very different from 16 cents over six months), and always divide by the net amount received, not the gross loan, or products with heavy upfront fees will look cheaper than they are.
The cheapest loan is not automatically the right loan. A slightly dearer facility with flexible early repayment, or a limit you can redraw, can beat a cheaper rigid one. Work out the true cost first, then weigh it against how the loan actually behaves. And if the numbers only work on the very best assumptions, the loan probably does not fit; see our guide to comparing business loans before committing.
The Funding Loop true cost checklist
Run every offer through the same checklist before signing:
- Total amount repayable over the full term, in writing
- Net amount received after all upfront deductions
- Establishment fee: amount, and whether deducted, capitalised or invoiced
- Brokerage, documentation, valuation and legal fees itemised
- All recurring fees multiplied across the full term
- Interest rate or factor rate identified, and converted to an effective annual rate
- Written answer to "what do I pay if I repay at the halfway point?"
- True cost calculated: repayments + fees, minus net received
- Cost per dollar: true cost divided by net amount received
- Repayment tested against your slowest month, not your average month
If you are juggling several existing facilities, the same checklist applied across all of them is the starting point for business loan consolidation decisions.
Next steps
Request the four numbers from any lender you are considering, run the checklist, and compare offers on total repayable and cost per dollar rather than the advertised rate. Repayment frequency changes the cash flow feel of a loan but not necessarily its cost; our guide to weekly versus monthly repayments covers that comparison.
Funding Loop arranges and compares business finance from a panel of lenders; the lender assesses the application and provides the loan. One application shows the options you may qualify for, and checking those options does not involve a credit check. A specialist can also do the true cost arithmetic across offers with you, so the comparison is on numbers rather than headlines.
Frequently asked questions
Are establishment fees deducted from the loan?
Often, yes. Many lenders deduct the establishment fee from the advance, so a $100,000 loan with a $2,500 fee delivers $97,500 in cash while repayments are calculated on the full $100,000. Some lenders instead add the fee to the balance or invoice it separately. The offer document states which method applies, and it is worth confirming before signing.
Is a lower repayment always cheaper?
No. A lower repayment usually means a longer term, and a longer term usually means more total interest. A $100,000 loan repaid over four years almost always costs more in total than the same loan repaid over two, even though the monthly figure is smaller. Compare loans on the total amount repayable, then check the repayment fits your cash flow.
Do business loans have comparison rates?
Generally, no. Comparison rates are a consumer credit disclosure requirement, and most business lending sits outside the National Consumer Credit Protection Act, so business lenders are not usually required to publish one. That makes the total amount repayable, requested in writing, the practical substitute: it captures interest and most fees in a single comparable number.
Does early repayment save interest?
It depends on the product. On an interest-bearing amortising loan, repaying early generally saves the interest not yet accrued, less any break or discharge fees. On factor rate products, the finance cost is usually fixed at the start, so early repayment often saves little or nothing. Ask for a written payout figure at the halfway point before signing.
Are business loan fees tax deductible?
Borrowing costs for business purposes are often deductible, but the timing and treatment depend on the fee type, the loan term and your structure, and rules change. Confirm the treatment with your accountant or registered tax agent, and check the Australian Taxation Office's current guidance on borrowing expenses rather than relying on a general article.
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