Business loan comparison rates: why most loans don't have one

A business loan comparison rate is a single percentage meant to show a loan’s interest and most of its fees together, but in Australia most business loans don’t have to display one. The comparison rate is a consumer credit rule, and credit used mainly for business purposes sits largely outside the consumer regime. So when you’re looking at business finance, the absence of a comparison rate is normal, not a red flag, and the job of comparing cost falls to you.

That sounds like a disadvantage, yet it can work in your favour. A comparison rate was always a simplification. Comparing business loans in total dollars is both more accurate and easier to reason about once you know the method.

What is a comparison rate, and where does it come from?

A comparison rate combines a loan’s interest rate with most of its fees and charges into one percentage. ASIC explains that comparison rates are required in advertisements for fixed-term consumer credit, and that they exclude government fees and charges and costs that only arise in certain circumstances, such as paying the loan off early. Moneysmart describes it as a figure that helps compare the overall cost of different loans.

It’s a useful shortcut for home loans and personal loans, where products are fairly standard. It was never designed for the variety of structures in business lending.

Why don’t business loans have a comparison rate?

The comparison rate requirement lives in the National Credit Code, and the Code applies to credit provided wholly or predominantly for personal, domestic or household purposes, or to buy, renovate or improve residential investment property. Credit provided mainly for business purposes is outside that scope. That’s why business lenders aren’t obliged to calculate or advertise one, and why you’ll see business finance priced in several different ways.

Feature	Consumer loans under the Code	Business-purpose loans
Comparison rate in advertising	Required for certain fixed-term credit	Not required
How price is shown	Annual rate plus comparison rate	Annual rate, factor, flat fee or total payable
Fee disclosure	Standardised formats	Set by each lender’s contract
Typical structures	Principal and interest	Many: interest only, balloons, capitalised, factor-based
Best comparison method	Comparison rate plus fees	Total dollars and conditions

Why a single percentage can mislead for business finance

Even if every business lender produced a comparison-style number, it wouldn’t tell the whole story:

• Different structures. A merchant cash advance repaid from card takings, a factor-priced short-term loan, and a five-year secured loan behave so differently that one percentage per product can’t line them up fairly.
• Fixed total cost. Some short-term products charge the same total no matter how quickly you repay. A percentage implies paying early saves money; often it doesn’t.
• Fees outside the figure. Government charges, valuation and legal fees on secured loans, and event-based fees like dishonour or early exit costs can be significant and sit outside a comparison rate.
• Different terms. A short loan can look expensive as an annual percentage while costing fewer total dollars than a long one.
• Security and guarantees. A percentage says nothing about whether your home is on the line.

What should you use instead of a comparison rate?

Use the total cost in dollars. For every offer:

1. Get the total of all scheduled repayments in writing.
2. Add every fee that sits outside those repayments: establishment if paid separately, line fees, account fees, valuation, legal and registration costs.
3. Find out how much cash will actually reach your account after any fees deducted at settlement.
4. Subtract cash received from total paid. That is your cost of finance.
5. Divide by the term in months to compare loans of different lengths.
6. Note security, guarantees and the cost of paying out early alongside the number.

Our guides to business loan fees and comparing business loans walk through each item. The business loan calculator turns a lender’s total cost into weekly, fortnightly or monthly repayments so you can check affordability.

If you’d rather someone else line up the dollar figures for you, make a quick enquiry and a specialist will set out realistic options in plain dollar terms.

An illustrative example: why dollars beat percentages

Purely illustrative, with no real lender or business involved. A plumbing business needs $50,000 for about a year and gets two offers.

	Offer X: 12-month term loan	Offer Y: factor-priced advance
Amount advanced	$50,000	$50,000
Fees deducted	$1,000	Nil
Cash received	$49,000	$50,000
Pricing shown as	Annual rate plus fee	Factor of 1.18
Total repaid	$56,400	$59,000
Repaid early at month 6	Total falls to about $53,700	Still $59,000
Cost of finance (full term)	$7,400	$9,000
Cost if repaid at month 6	about $4,700	$9,000

Offer Y’s factor of 1.18 looks small on paper, and it’s easy to read it as a modest yearly charge. In dollars it costs $9,000, more than Offer X, and paying it off early saves nothing. Offer X deducts a fee, so less cash arrives, but it’s still cheaper overall and rewards an early payout. The percentages hid that; the dollar table shows it immediately.

Do any business lenders still quote a rate?

Many do. Banks and non-bank lenders commonly price business loans with an annual rate, sometimes fixed and sometimes variable, plus fees. That rate is still useful for comparing loans of the same type and structure from similar lenders. Problems arise when you compare across structures, such as a bank loan against a factor-priced advance or a capitalised short-term property loan. Our guide on how business loans are priced covers how lenders arrive at the price in the first place.

Is a business loan ever covered by the consumer rules?

The test is the purpose of the credit. If it’s mainly for business, the Code generally doesn’t apply. If it’s mainly personal, it generally does. Lenders ask you to confirm the business purpose, and you should answer accurately because the purpose determines which rules apply. Our page on business loans vs personal loans explains the line in more detail.

What protections do you still have without a comparison rate?

No comparison rate doesn’t mean no protection. ASIC administers unfair contract term protections covering standard-form small business contracts, including loans, and the Australian Financial Complaints Authority handles small business lending complaints free of charge for credit facilities up to $5 million. Banks that subscribe to the Banking Code of Practice also have obligations to small business customers. None of these replace your own comparison, but they’re there if something goes wrong.

Checklist: comparing business loans without a comparison rate

• Same amount, similar term, same purpose for every quote.
• Total of repayments, in writing.
• Every fee listed with amount and timing.
• Cash received after deductions.
• Cost of finance and cost per month calculated.
• Early payout cost at six and twelve months.
• Security, guarantees and default triggers noted.
• Repayments tested against a quiet month’s cash flow.

What to ask instead of “what’s your comparison rate?”

Swap the single question for five better ones: What is the total of all repayments? What fees sit outside them? How much cash will I actually receive? What does it cost to repay early? What security and guarantees are required? Those answers give you a complete, comparable picture that no single percentage can.

Ready to compare options in real dollars?

Comparison rates were built for consumers. For business finance, a clear dollar picture of a few realistic offers does the job better. To get there, find out what you qualify for with a short enquiry. We won’t run a credit check just because you asked, your details aren’t spread across a list of lenders, and a person with lending experience reviews your file. Please answer accurately about turnover, security and what the money is for, so the options we present match your business from the outset.