How to compare business loans: a practical checklist
Compare business loans on total cost of finance over the full term, not the advertised rate. Then compare the security required, the repayment flexibility, early exit costs, and any conditions or covenants in the contract. Two offers with the same rate can differ substantially once fees, residuals and exit terms are counted.
- Total cost of finance is the only figure that makes different structures comparable.
- Ask what happens if you want to repay early, before you sign.
- Only compare like products; a line of credit and a term loan are not alternatives.
- Read the conditions. Covenants and security clauses outlast the rate.
Start by comparing like with like
The most common mistake is comparing a rate on one product with a rate on another. An equipment finance quote, a short-term cashflow facility and a property-secured term loan will show wildly different rates because they carry wildly different risk. None of that tells you which is better for your purpose.
Decide the structure first, what the money is for, how long you need it, what security you are prepared to give, then compare offers within that structure.
The six things to compare
| What to compare | The question to ask |
|---|---|
| Total cost of finance | What will I have paid by the end of the term, all in? |
| Fees | Establishment, monthly, PPSR, valuation, annual review, list every one |
| Term and repayment | Does the repayment fit the cashflow the asset or purpose generates? |
| Security | What exactly is secured, and is a personal guarantee required? |
| Flexibility | Can I repay early, redraw, or make additional payments? |
| Conditions | Any covenants, reporting obligations, or restrictions on further borrowing? |
Get all six in writing. A verbal indication is not an offer, and the differences that matter tend to live in the documentation rather than the quote.
The questions worth asking every lender
- What is the total cost of finance over the full term?
- What is the payout figure if I repay after twelve months?
- Is there a residual or balloon, and how was it set?
- Is a personal guarantee required, and for how much?
- What is secured, a specific asset, or a general security agreement over the business?
- What reporting will I need to provide during the term?
- How long will settlement take once approved?
Ask for the answers in writing.
Comparing like products only
Before any numbers are collected, be clear on which product you are comparing, because the same business will be quoted very different rates across categories.
| Product | What it is for | Compare it against |
|---|---|---|
| Equipment finance | A specific asset purchase | Other equipment finance offers on the same asset and term |
| Term loan | A defined one-off purpose | Other term loans at the same amount and term |
| Line of credit | Recurring working capital | Other revolving facilities, on fee structure as well as rate |
| Invoice finance | Funding the debtor ledger | Other ledger facilities, on advance rate and dilution terms |
| Short-term loan | A gap of months, not years | Other short-term offers, on total cost rather than rate |
Cross-category comparison is only useful at one point: when you are deciding the structure itself. Once that decision is made, comparing outside it tells you nothing about whether the offer in front of you is competitive.
Reading the contract, not just the quote
The quote sets the price. The contract sets everything else, and the clauses that matter most rarely appear in a comparison table.
Security and cross-collateralisation
Confirm exactly what is secured. A general security agreement covers the assets of the business broadly rather than one item. Where several facilities sit with the same lender, check whether they are cross-secured, because a default on one can then affect all of them.
Guarantees
Ask for the amount guaranteed, whether it reduces as the loan is repaid, and whether it extends to future facilities with the same lender. An all-obligations guarantee is a different commitment from one limited to a single loan.
Default and review clauses
Read what constitutes a default. Some contracts include events beyond missed payments, such as a material adverse change in the business or a failure to provide reporting on time. Also check what the lender can do at annual review, particularly whether a limit can be reduced or withdrawn and on what notice.
Covenants and reporting
Larger facilities often carry obligations to provide financial information periodically or to maintain a financial ratio. These are manageable when you know about them and awkward when discovered in month eight.
A method that makes offers comparable
Working through the same steps for each offer removes most of the guesswork.
- Fix the structure first. Decide the product, the amount and the term before collecting quotes.
- Request each offer in writing with the same term and amount, so nothing differs but the pricing.
- For each one, calculate total repayments over the full term, then add every fee and any residual. That single figure is your comparison number.
- Note the payout figure at twelve months for each, which tells you the cost of flexibility.
- List the security and guarantees required by each, since two offers at the same price may not carry the same risk.
- Note the settlement timeframe and any conditions attached to approval.
- Only then compare, and be explicit with yourself about what you are paying extra for if you do not take the cheapest.
The exercise usually takes an hour and regularly finds differences worth far more than that over a multi-year facility.
Where a broker changes the comparison
Applying directly to lenders one at a time gives you sequential answers and a credit file marked by each enquiry. A broker with a wide panel can assess where an application is likely to succeed before it is lodged, and present several offers together.
BizLend is an accredited finance broker with a panel of more than 70 lenders and has arranged over $300 million in residential and business lending, with business facilities from $50,000 to $5 million. Comparison is free, carries no obligation, and does not affect your credit file.
Frequently asked questions
Does comparing business loans affect my credit score?
Comparing quotes does not. Lodging formal applications does, each credit enquiry is recorded. A broker comparison avoids multiple enquiries.
Is the lowest rate always the best offer?
No. Fees, residuals, early exit costs and conditions can make a higher-rate offer cheaper and more workable overall. Compare total cost of finance.
How many offers should I compare?
Three well-matched offers within the same product type is usually enough to know whether the pricing is competitive.
Do brokers charge a fee?
BizLend does not. Our service is free to you, and we are paid a commission by the lender for the work we do. Arrangements differ between brokers, so ask upfront how any broker is remunerated and whether a fee is payable by you.