The true cost of business finance: how to compare offers in dollars

Business finance is priced in more ways than almost any other financial product. One lender quotes an establishment fee plus interest. Another quotes a single total to repay. A line of credit charges on the drawn balance plus a monthly fee. An invoice funder charges a service fee and a discount. A merchant advance names a fixed total collected from card sales. Trying to compare these on headline figures is like comparing a litre price with a per-kilo price. The solution is simple: convert everything to dollars over the same period.

The one formula that matters

The true cost of any business finance is:

Total you will repay, including every fee, minus the amount you actually receive.

If you receive $50,000 and will repay $59,500 in total, including fees, the cost is $9,500. That is the number to compare. Once you have the dollar cost for each option over a similar timeframe, the cheapest is obvious, and you can then weigh it against fit and flexibility.

Watch what you actually receive

Some fees are deducted from the loan before you receive it. If a $50,000 loan has a $1,500 establishment fee taken from the advance, you receive $48,500, but you repay as though you borrowed the full amount. Always calculate cost against the amount that lands in your account, not the headline loan amount.

The fees to look for

• Establishment or origination fees at the start.
• Account keeping or facility fees monthly or annually.
• Line or limit fees on lines of credit, charged on the limit rather than the drawn balance.
• Drawdown fees each time you draw on a facility.
• Dishonour fees if a repayment bounces.
• Early payout fees or rules that keep the full cost payable on early repayment.
• Administration or brokerage fees where applicable.

Ask every provider for a complete list in writing.

Want an honest comparison? Start a 60-second enquiry and we will set out the costs in dollars. No credit check to enquire.

Comparing different products fairly

Term loans. Easy to compare: total repayable minus amount received.

Lines of credit. Cost depends on how much you draw and for how long. Estimate your usage over a year, add all line, drawdown and account fees, and ask the provider for a dollar figure on that usage. The drawdown planner helps estimate your average drawn balance.

Invoice finance. Ask for the total fees on a typical month of invoices, then multiply across the year. The invoice finance calculator helps.

Merchant cash advances. The total repayable is usually fixed upfront. The cost in dollars is the total minus the advance. Remember that repaying quickly usually does not reduce it. See merchant cash advance.

Time matters too

A $9,000 cost over twelve months is different from a $9,000 cost over three months, because in the second case you have the money for a much shorter time. When comparing products with different terms, think about cost relative to how long you will actually use the funds. A short-term loan with a higher dollar cost may still be the right choice if you need the money for only a few months and a longer facility would keep you paying well after the need has passed.

Repayment frequency and cash flow

Two offers with the same total cost can feel completely different. Daily repayments on business days hit the account constantly; monthly repayments arrive in one larger lump. Which suits depends on how your income arrives. A cafe paid daily may find daily debits comfortable; a consultancy paid monthly may find them a strain. Our guide to daily versus weekly repayments explores this, and the repayment estimator shows each frequency side by side.

Early payout: the hidden variable

If there is any chance you will repay early, for example when a big invoice lands, early payout terms can change the true cost dramatically. Some loans reduce remaining charges if repaid early; others require the full agreed total no matter what. A loan that looks slightly more expensive but rewards early repayment may cost less in practice. See paying out a business loan early.

The cost of not borrowing

True cost has another side: what it costs to go without. Missing payroll, paying ATO penalties and interest, losing a supplier discount, turning down a contract or losing trade while equipment is broken all have real costs. Finance is worth it when it costs less than the problem it solves or earns more than it costs. When the cost of borrowing is higher than the benefit, the answer is to not borrow, or to borrow less.

Fit and flexibility

The cheapest offer is not automatically the best. Consider whether repayments match your cash flow, whether the term matches the purpose, whether you can top up or redraw, how the lender handles a missed repayment and whether the contract has restrictive conditions. Small businesses have protection against unfair terms in standard form contracts, and ASIC explains these protections. If a clause seems one-sided, ask about it.

A worked comparison

An illustrative business needs about $40,000 for twelve weeks to cover a contract’s materials. Offer A is a six-month loan with a total cost of $5,200 and no reduction for early repayment. Offer B is a line of credit with a $750 setup fee, monthly fees and charges on the drawn balance; drawing $40,000 for twelve weeks and then repaying would cost around $3,400 all up. Offer C is a merchant advance with a fixed total cost of $6,000. Converted to dollars on realistic usage, Offer B is cheapest and fits the short need best, even though Offer A’s repayments looked simpler.

Costs that sit outside the contract

Some costs never appear in the loan documents but still affect what finance really costs your business. Time spent gathering paperwork and chasing a slow application is one. Missed opportunities while waiting for approval are another. If a slow, cheap facility means missing a supplier deal or paying ATO interest for an extra month, the faster option may be cheaper overall. Equally, a facility that requires daily debits from an account that is paid monthly may cause dishonour fees and stress that a slightly more expensive weekly option would avoid. Factor these practical costs into your decision alongside the contract figures.

Tax treatment

The tax treatment of finance costs can affect the after-tax cost to the business. Interest and some fees on business borrowing may be deductible, while ATO interest charges are no longer deductible for income years starting on or after 1 July 2025. Rules are specific, so ask your accountant how the costs of each option will be treated before you compare them on an after-tax basis.

A comparison checklist

1. Amount you will actually receive.
2. Total you will repay, including every fee.
3. True cost in dollars.
4. Term and how long you need the funds.
5. Repayment frequency and amount.
6. Early payout terms.
7. Flexibility: redraw, top-up, repayment holidays.
8. Default and dishonour terms.

Our guide to comparing business loan offers turns this into a side-by-side worksheet.

Get the real numbers

When you enquire, we talk in dollars, not teaser figures. There is no credit check to enquire, your details are not passed to a crowd of lenders, and a real person reads your enquiry. Tell us accurately what you need and for how long, and we will show you what each option really costs. Apply now.