Start with total dollars, not one percentage
An interest rate is important, but it does not describe the complete cost of business finance. Two loans with the same stated rate can have different establishment, legal, review and repayment costs. They can also remain open for different lengths of time.
Compare the amount the business is likely to pay over the realistic period it expects to use the facility.
Costs that may be relevant
- Interest on the amount outstanding.
- Establishment or facility fees.
- Legal and security-document costs.
- Property or title search costs.
- Valuation costs where a valuation is required.
- Broker or adviser fees, if applicable.
- Ongoing administration or review fees.
- Default interest and enforcement costs if obligations are not met.
- Early-repayment, discharge or extension costs where applicable.
Not every facility includes every item. The letter of offer and loan documents should set out the actual costs.
Use the realistic duration
If a facility is expected to be repaid from a sale in three months, compare a realistic three-month outcome—including the possibility of delay. If the business expects to retain an open-term facility, model the longer period and its payment requirements.
An unrealistically short assumption can make any option look cheaper than it may be in practice.
Understand capitalised interest
Where interest is capitalised, it is added to the amount owing instead of being paid immediately. This can protect near-term cashflow, but the balance grows while interest is being added.
An approved HomeSec facility may begin with no payments for up to six months. The exact arrangement is governed by the contract and is not the same as an interest-free period.
Put flexibility into the comparison
Ask whether the business can repay early, make lump-sum reductions, continue the facility by servicing interest, or needs formal approval to extend. Flexibility can have commercial value, but it should be weighed against the total cost and the risk of keeping debt longer than planned.
Questions to ask before accepting an offer
- What is the interest rate and how is interest calculated?
- Which costs are deducted at settlement or added to the balance?
- What payments are required and when?
- What will be owing after the expected period?
- What happens if the exit is delayed?
- Can the loan be repaid early, and what will that cost?
- Which property and guarantees support the facility?
- What events amount to default?
Compare the commercial outcome too
Finance may allow a business to secure stock, complete a contract or buy an opportunity that would otherwise be lost. That potential value belongs in the decision, but it should not be used to ignore repayment capacity, downside scenarios or property risk.
Obtain independent advice and use the actual proposed documents—not general website examples—to make the final comparison.