Free tool exposes the true cost of your small business loan

Free tool exposes the true cost of your small business loan


A new tool released today by provides the transparency the fintech SME loan market has been missing.


Lend’s new Factor Rate to APR Converter allows SMEs to quickly assess the true cost of borrowing, and make an informed choice about business finance.


The fintech lender market has come under increased scrutiny recently due to the highly publicised (now permanently postponed) float of ASX hopeful Prospa.


Fintech lenders typically charge SMEs via ‘factor’ rates. These are presented as a decimal (ie 1.3, in the example below). For short-term loans of less than 12 months, which are typical of SME lending, many business owners incorrectly assume a factor rate of 1.3 is equivalent to an annual interest rate of 30 per cent per annum.


In fact, the true annual interest rate can be significantly higher.


This is because the SME does not have access to the funds over the full 12 month period, and the factor rate is applied, in full, over the shorter term.


Business loans typically fall outside of the National Consumer Credit Protection Act 2009 (NCCP). The NCCP only allows for individuals to be charged a maximum annual interest rate of 48 per cent, plus very specific guidelines of the fees that can be charged.


In addition, the annual interest rate for SME finance does not include fees. The annual percentage rate (APR, below) shows the true cost of a loan as an annualised percentage of any proposed loan, inclusive of fees.


Here’s the difference:


Bill Baker, CEO of Lend, says: “We understand that SMEs are often unable to get the finance they need from high street banks. Fintech lenders clearly play a critical role in providing access to the capital required. The concern we have is in relation to the transparency of the cost of the loan. With our new tool, business owners are able easily to work out the true cost of the loan so they can make an informed decision.”


About Lend Capital Pty Ltd

Founded in 2016, offers the information and tools to help SMEs access the capital and funding they need in order to facilitate growth. —

/Public Release.