Flat rate vs APR: business loan costs and total cost explained

The cost of a loan is usually a mix of these elements:

• Interest, quoted as an annual rate, a flat rate or a fixed fee.
• An arrangement or facility fee, either paid upfront, deducted from the loan or added to it. PTSB, for example, says it may charge a facility fee of up to 1% of the loan amount on business term loans.
• A broker fee, where a broker charges one. Welcome Finance charges your company no fee.
• Legal, valuation or security fees if the lender takes security.
• Early repayment chargesA fee some lenders charge if a loan or finance agreement is repaid before the end of its term, to compensate for interest they will no longer receive., if the loan is repaid before the end of the term.
• Late payment interestStatutory interest a business can claim on overdue invoices from other businesses or public bodies under the European Communities (Late Payment in Commercial Transactions) Regulations 2012 (S.I. No. 580 of 2012). and default charges if payments are missed.

Some lenders charge no arrangement feeA one-off fee for setting up a loan or facility, charged by the lender or a broker, either paid upfront or deducted from the funds advanced. at all. Bank of Ireland, for example, states that its business loans have no arrangement fee, although legal and valuation fees may apply where security is required.

Most bank term loans charge interest on a reducing balance. Each repayment pays some interest and some capital, so as the balance falls, so does the interest. This is called amortisation.

Flat rate interest works differently. Interest is calculated on the original amount for the whole term, even though you are paying the balance down every month. The effect is that, on a loan repaid in equal instalments, the true annual cost is often 1.8 to 2 times the flat rate, depending on the term.

Illustrative example: 8% flat vs 8% reducing balance

• At 8% on a reducing balance, the monthly repayment is about €1,567, total interest is about €6,405 and the total repayable is about €56,405.
• At 8% flat, interest is €50,000 × 8% × 3 = €12,000. The total repayable is €62,000, or about €1,722 a month.
• The flat-rate loan costs about €5,600 more. Expressed as an annual rate on a reducing balance, 8% flat over three years is roughly 14.5% a year, or an APR of about 15.6%.

To convert a flat rate on your own offer, use our rate converter, and model reducing-balance repayments with our business loan calculator.

Merchant cash advancesA form of finance where a provider advances a lump sum in return for a fixed percentage of the company's future card takings until an agreed total is repaid. and some short-term loans are priced with a factor rate or a fixed fee. You agree in advance the total amount to repay. A factor rate of 1.2 on €30,000 means your company repays €36,000, a cost of €6,000.

The cost in euro is fixed, but the cost per year depends on how fast you repay. With a merchant cash advance, repayments are usually a percentage of card sales, so busy months repay faster. If that €6,000 is paid over six months, the annual cost is far higher than if it is paid over twelve. Paying early usually does not reduce the fee. Our merchant cash advance guide explains this in more detail, and the factor rate calculator turns a factor rateA pricing method used mainly for merchant cash advances and some short-term finance, expressed as a multiplier such as 1.2 rather than an interest rate. into an annual equivalent.

APR, the annual percentage rate, turns the total cost of credit into one annual percentage. Under the Consumer Credit Act 1995The main Irish law protecting individuals who borrow or buy on credit, covering matters such as cost-of-credit information, cooling-off rights and the authorisation of credit intermediaries by the CCPC., the total cost of credit includes interest, collection and all other charges the borrower must pay, apart from penalties for breach of the agreement. Consumer lenders must quote it. The CCPCThe State body that enforces competition and consumer protection law in Ireland. advises consumers to compare APRs only on loans of the same amount and term, because APR cannot fairly compare loans of different terms.

APR is a consumer-credit requirement. The Consumer Credit Act defines a consumer as a natural person acting outside their business, so a loan to a limited company is not consumer credit. Business lenders are not always required to quote an APR on a business loan, and many quote only an interest rate, a flat rate or a fee. Our APR calculator works one out from the repayments, term and fees.

What regulated lenders must tell your company

Central Bank-regulated lenders that lend to micro, small and medium-sized enterprises must follow the SME Lending Regulations (S.I. No. 585 of 2015). Before your company is bound, a regulated lender must give you the terms and conditions together with the fees, charges and interest rates that apply, and explain how the interest charge is calculated. If a charge can be added to the loan, the lender must also offer the option of paying it separately and state the overall cost of paying it over the term. These regulations do not require an APR.

Not every business lender is regulated by the Central Bank, and unregulated lenders are not bound by these regulations. Ask any lender for a written repayment schedule showing every payment and fee.

A fee deducted from the loan means your company receives less but repays the same amount, which pushes up the real cost.

Illustrative example: the effect of a 2% fee

Some of the most important costs are not in the interest rate at all. Read the offer letter for these:

• Security: a charge over property or assets may bring legal and valuation fees, and limits what your company can do with those assets. See secured vs unsecured business loans.
• Personal guaranteesA legally binding promise by a director or other individual to repay a company's debt if the company cannot.: a director may become personally liable if the company cannot repay. This is a real cost, even if no money changes hands at the start.
• Covenants: conditions such as minimum profit levels or limits on other borrowing. Breaking one can let the lender change terms or demand repayment.
• Repayment frequency: daily or weekly repayments take cash out of the business faster than monthly ones, even at the same total cost.
• Renewal or top-up fees: some short-term products charge a new fee each time you renew.

Many Irish bank business loans are variable. A variable rate can rise or fall during the loan, often in line with a reference rate such as EuriborThe Euro Interbank Offered Rate, a benchmark showing the average rate at which banks in the euro area lend to each other over set periods, such as three or six months. or the bank’s own reference rate, which in turn tends to follow ECBThe key interest rates set by the ECB for the euro area, including the main refinancing rate and deposit facility rate. rates. The ECB raised its deposit facility rate twice in 2026, to 2.50% from 16 September 2026. A fixed rate gives certainty but may come with break costs if you repay early. Ask how often a variable rate can change and how you will be told.

Consumer credit advertising in Ireland must show the APR and the total cost of credit, and the CCPC says no other rate of interest may be displayed. Business finance advertising does not always follow the same format, so one lender may advertise a monthly rate, another a flat rate and another a fee. Regulated SME lenders that advertise an interest rate together with a term must also show the total cost of credit to the borrower. When comparing, convert every offer to the same basis: the total amount repayable on the same amount and term.

Use this checklist for every offer your company receives:

1. Write down the amount your company will actually receive after any deducted fees.
2. Write down the total amount repayable, including every fee, over the full term.
3. Subtract one from the other to get the total cost of credit in euro.
4. Check whether the rate is flat, reducing balance or a factor rate, and whether it is fixed or variable.
5. Ask what happens if you repay early, and whether interest or fees are reduced.
6. Check the repayment pattern: monthly, weekly, daily or a share of sales, and whether it suits your cash flow.
7. Check security, any personal guarantee and any covenants.
8. Compare offers on the same amount and term wherever you can.

A cheaper loan is not always the right loan. A slightly dearer facility with no personal guarantee or no early repayment fee may suit your company better. What matters is that you know the full cost before you sign.

Our panel of five specialist non-bank lenders can consider unsecured and short-term business loans, working capital, merchant cash advance, revenue-based finance, stock and trade finance for limited companies registered in Ireland. We can tell you which lenders on our panel may consider your company; we do not give financial advice. Always check the lender’s written terms and work out the total amount repayable. Welcome Finance is a commercial finance broker, not a lender, and is not regulated by the Central Bank of Ireland.

Check any offer yourself with the tools above: the APR calculator, the rate converter and the factor rate calculator each answer a different question, and this guide explains what the numbers mean.