Why is the cost against net advance higher than my interest rate?

Because it includes the arrangement fee, measured against what you actually received rather than the face value of the loan. A fee deducted upfront means you're paying interest on money you never had access to, which the headline rate doesn't reflect.

What if the fee is added to the loan instead of deducted from it?

This calculator assumes the fee is deducted from the advance, which is the more common structure. If your lender adds it to the balance instead, increase the loan amount by the fee amount and set the fee to 0% to approximate that structure.

Does this cover unsecured business loans and merchant cash advances?

It models a standard fixed-rate, fixed-term loan with equal monthly repayments. Revolving credit, invoice finance and merchant cash advances are structured differently and this figure won't apply to them.

Business Loan Calculator

Calculate business loan repayments and the real cost once fees are included.

Runs entirely in your browser — nothing you enter is uploaded.

Loan amount

Annual interest rate

Term

years

Arrangement fee

Charged once at drawdown

Headline rate against real cost

The advertised rate of 8.9% describes interest on the full £50,000. But the arrangement fee of £1,250 comes out first, so only £48,750 reaches your account. Measured against what you actually receive, the borrowing costs 27.4% over the full term.

This is why offers should be compared on total cost against net advance. A lower rate carrying a high fee frequently costs more than a higher rate carrying none, particularly over short terms where the fee is spread across fewer payments.

Monthly repayment

£1,035.49

Net advance received£48,750

Arrangement fee£1,250

Total repaid£62,130

Total cost of borrowing£13,380

Cost against net advance27.4%

An estimate, not a credit offer. Business lending is priced on trading history, sector and security.

This is a calculation, not advice

The result is arithmetic from the figures you entered, under the assumptions listed below. It is not regulated financial advice and not an offer. Speak to a qualified adviser before making a decision.

How to use Business Loan Calculator

Enter the loan amount you're looking to borrow.
Enter the annual interest rate quoted by the lender.
Enter the term in years.
Enter the arrangement fee as a percentage, if one applies — enter 0 if there isn't one.
Compare the monthly repayment against the "cost against net advance" figure, not the headline rate.

How this works

The repayment uses the same amortizing formula as any fixed-term loan. What distinguishes business lending is that the advertised rate rarely reflects the true cost: arrangement fees are commonly deducted from the advance or added to the balance. This tool reports both the headline cost and the effective cost, calculated by comparing total repayments against the money you actually receive.

M = P × [ r(1 + r)^n ] / [ (1 + r)^n − 1 ]; effective cost = (total repaid − net advance) ÷ net advance

Assumptions

A fixed rate over the full term with equal monthly repayments.
The arrangement fee is charged once at drawdown, not annually.
No early repayment charges, late fees or covenant breach penalties.
Interest relief on business borrowing is ignored; treatment depends on your tax position.

Worked example

£50,000 over 5 years at 8.9% with a 2.5% arrangement fee.

Loan amount: £50,000
Annual rate: 8.9%
Term: 5 years
Arrangement fee: 2.5% (£1,250)
Result: £1,035.49 per month

Total repaid is £62,130. If the £1,250 fee is deducted from the advance you receive £48,750, so the borrowing costs £13,380 against what actually reached your account — 27.4% of the money you were given, over five years. That is a very different figure from the 8.9% headline rate, and it is the one worth comparing between offers.

How to read the result

Compare offers on total cost against net advance, never on the advertised rate. A lower rate with a high arrangement fee frequently costs more than a higher rate with none, particularly on shorter terms where the fee is spread over fewer months. Also weigh the monthly repayment against your actual cash flow, not your best month.

Limitations

Not a credit offer. Business lending is priced on trading history, sector, security and the lender's own criteria.
Variable-rate, revolving-credit and invoice-finance facilities work differently and are not modelled.
Personal guarantees and secured charges carry risks that no repayment figure captures.
This is a calculation, not regulated financial advice.

Frequently asked questions

Why is the cost against net advance higher than my interest rate?: Because it includes the arrangement fee, measured against what you actually received rather than the face value of the loan. A fee deducted upfront means you're paying interest on money you never had access to, which the headline rate doesn't reflect.
What if the fee is added to the loan instead of deducted from it?: This calculator assumes the fee is deducted from the advance, which is the more common structure. If your lender adds it to the balance instead, increase the loan amount by the fee amount and set the fee to 0% to approximate that structure.
Does this cover unsecured business loans and merchant cash advances?: It models a standard fixed-rate, fixed-term loan with equal monthly repayments. Revolving credit, invoice finance and merchant cash advances are structured differently and this figure won't apply to them.