The real price of a business loan

Borrowing for your business is rarely just about the headline interest rate. The fee line items matter just as much, because they can materially change what you repay and how quickly the loan pays for itself. An arrangement fee, for example, is often charged upfront or added to the balance, and either way it affects the true cost. That is why APR is such a useful concept: it is designed to reflect the overall cost of borrowing, including certain fees, not just the interest.

In the UK, unsecured business loan rates commonly start around 6% and can reach 15% or more depending on the lender, term, and your credit profile. The wider backdrop matters too. With the Bank of England base rate at 3.75%, many variable-priced products and pricing models tend to sit higher than they did in the ultra-low-rate era.

Understanding APR isn’t just about percentages - it’s about knowing what you’ll pay in real terms.

Standout: If two loans share the same interest rate, the one with higher fees can still cost meaningfully more.

Who this is designed to help

This guide is for UK-based individuals who run, own, or are starting a small business and want a plain-English view of fees before applying. That includes sole traders, freelancers, contractors, and directors of limited companies who are comparing lenders and trying to budget with confidence. It is also relevant if you have seen an attractive rate advertised but want to sanity-check the “extras” before committing.

If you are weighing up a bank loan against a government-backed Start Up Loan, or you are simply trying to understand why two monthly repayment quotes differ for the same amount, this will help you compare like-for-like. The aim is not to push you towards one lender, but to make the fee mechanics predictable so you can make a measured decision.

Common fee and pricing options you may see

1. Arrangement (setup) fee charged upfront or added to the loan

2. Tiered arrangement fees based on the amount borrowed

3. Fees that vary by term length (shorter terms sometimes lower)

4. APR-based pricing (interest plus qualifying fees combined)

5. Early settlement terms (rebates, minimum charges, or admin costs)

6. Government-backed loans with no application or early repayment fees

What fees change in practice: cost, impact, returns, risks

Eligibility: what lenders usually look at

Lenders typically assess affordability, stability, and risk rather than simply your business idea. In practical terms, that often means looking at trading history, recent bank statements, projected cashflow, existing commitments, and your personal and business credit profiles. Newer businesses may face tighter limits or higher pricing because there is less evidence of steady income, while established firms may access broader ranges and more competitive pricing.

Government-backed Start Up Loans work differently: they are designed for new businesses and offer a fixed interest rate with no application or early repayment fees, but repayments start straight away and you still need to show that the plan is viable and affordable. Bank loans may offer larger limits, yet can come with arrangement fees and pricing that varies by amount and term.

Kandoo can help you understand how fees and APR interact across options, and help you compare offers in a way that matches your budget rather than just the advertised rate.

From comparison to cash: a practical step-by-step

1. Decide the amount needed and the repayment term.

2. List all fees: arrangement, admin, and early settlement.

3. Compare APRs, then check what fees are included.

4. Estimate total repayable and monthly repayments side-by-side.

5. Stress-test cashflow with a higher-rate scenario.

6. Check early repayment terms if you might settle early.

7. Apply with accurate documents to avoid underwriting delays.

Pros and cons to weigh up

The fine print that catches people out

The most common mistake is treating fees as secondary. If you borrow £10,000 and pay a £300 arrangement fee, you have effectively paid 3% of the loan amount before interest even starts. That can be reasonable over several years, but it is far less attractive if you intend to refinance or repay within months. Similarly, APR is only useful if you understand what sits inside it. A small fee on a small loan can make a big difference to the effective cost, even when the interest rate looks competitive.

It is also worth being realistic about the rate you will actually be offered. Market guides show unsecured business borrowing can run from around 6% up to 15% or more, and your price will reflect affordability and risk. Finally, remember the wider rate environment. With the base rate at 3.75%, variable-linked borrowing may stay sensitive to economic changes.

Next step: before you apply, write down (1) total fees, (2) APR, and (3) total repayable. If any lender cannot make those clear, pause.

Other routes worth considering

1. Government-backed Start Up Loans (up to £25,000, fixed interest, no application or early repayment fees)

2. Smaller bank loans with transparent fees and example rates (often subject to credit and term)

3. Short-term borrowing for bridging a specific invoice cycle (watch the fee-to-term trade-off)

4. Asset finance where an asset supports the borrowing (different fee structures)

5. Overdrafts for working capital (often variable and base-rate sensitive)

FAQs

What is an arrangement fee and how is it paid?

An arrangement fee is a one-off charge for setting up the loan. Some lenders take it upfront, while others add it to the loan balance so you repay it over time. Upfront payment can reduce interest charged overall; adding it to the balance may help short-term cashflow but increases total interest.

Is APR always better than the interest rate for comparing loans?

In most cases, yes. APR is designed to reflect the overall cost, combining interest and certain fees. This matters because fees can materially change what you pay. For instance, adding a fee to a loan can push the effective cost notably higher than the headline interest rate suggests.

Do UK banks really charge tiered fees?

Some do. One major UK bank publishes arrangement fees that step up as the loan amount increases, with bands such as £100 for smaller amounts, rising through higher tiers, and switching to a percentage-based fee beyond a larger threshold. This is exactly why checking the fee band for your specific borrowing amount matters.

What rates should I expect for an unsecured business loan?

As a broad guide, unsecured business loan rates in the UK can start around 6% and reach 15% or more depending on credit profile, trading history, and term. Your actual offer may differ from examples shown online, and fees can change the effective cost.

Are Start Up Loans cheaper than bank loans?

They can be, especially on fees. Government-backed Start Up Loans offer a fixed interest rate and typically charge no application or early repayment fees, which improves predictability. However, you still need to meet eligibility requirements and repayments begin immediately, so affordability remains key.

Can I repay early without extra cost?

It depends on the product terms. Some lenders allow early repayment with an interest rebate, sometimes subject to a minimum charge or specific calculation. Always ask what happens if you settle after 6 months, 12 months, and halfway through the term.

What Kandoo can do for you

Kandoo is a UK-based retail finance broker, and we help people compare finance options with a clear view of the real cost. If you are weighing up APR, arrangement fees, and repayment terms, we can help you sense-check quotes and understand how fees change the numbers. If you are ready to explore options, start with the amount you need and your preferred term, and we will help you compare based on total repayable, not just the headline rate.

Disclaimer

This guide is for general information only and does not constitute financial advice. Rates, fees, and eligibility criteria vary by lender and can change. Always check the lender’s current terms and consider independent advice if you are unsure.