Why you should consider more than interest rates when borrowing for your business

When it comes to business borrowing, interest rates are often what grab the headlines. But considering all the additional fees and other factors that can affect the overall cost or customer experience, are they really so important?

A recent Growth Street survey of 2,006 business owners revealed that, when considering different aspects of a business loan, a cheap interest rate comes bottom of the list of priorities. Transparent pricing was the most important factor, followed by flexibility and the provision of a structured repayment plan.

Interestingly, the group most attuned to the idea of a product that was simpler but worked out more expensive were the 286 businesses polled in London. Respondents in Northern Ireland, Scotland and Wales, on the other hand, preferred a cheaper solution, but that comes with lots of different fees and add-ons.

Based on these results, it’s clear that many business owners are starting to wake up to the fact that identifying the most suitable business finance isn’t necessarily just a matter of finding the best headline rate.

Besides, interest rates can often be misleading. The commercial finance space in the UK is unregulated, meaning there’s no requirement to disclose a product’s Annual Percentage Rate (APR). This enables providers to hide the true cost of credit.

Some will also add on hidden costs for borrowing money, such as application, origination or late-payment fees. These often won’t be disclosed upfront, but will instead be hiding in the terms and conditions. The result is that many businesses are misled about the true cost of a business finance product, and end up paying more than they originally thought.

Sometimes, the very best rates are only available to borrowers able to accept certain restrictions or business requirements. For example, many low-rate options are only open to those willing to provide security in order to reduce the risk to the lender. Or, in the case of invoice finance, there could be limits on the amount of exposure you could have to a single debtor.

Helping make business finance more affordable

But, of course, keeping costs down will always be a priority for most businesses. And there are things you can do to make business finance more affordable. Here’s our top tips for next time you’re in the market:

  1. Urgent money is often expensive money – plan ahead.
  2. Monitor and maintain your business credit score.
  3. Keep in-depth and up-to-date management information.
  4. Are you able to offer security on the loan?
  5. Consider more flexible products that charge you based on what you borrow each month, rather than a set amount.

Choosing a business finance provider is a big decision, and it’s important to properly scrutinise each option and not be distracted by an attractive headline rate. Alongside uncovering any hidden costs, there’s a number of other factors that should be taken into consideration, such as flexibility or security requirements, to make sure you’re picking the suitable option for your business. Remember, if it seems too good to be true, it often is.

At Growth Street, we only charge two fees: a service fee and a loan rate. No nasty surprises here!

To find out what Growth Street could offer your business, you can apply now online – it should only take a few minutes.

Growth Street Limited is registered in England & Wales (company number 09264172).

Our registered address is 5 Young Street London Greater London W8 5EH United Kingdom.

Written on in Business Insights Borrowing