Quick answer
To compare business loan offers fairly, line them up on the same measures: cash you actually receive, total cost in dollars, cost per dollar received, cost per month and repayment size. Then compare the terms that change your risk: security, personal guarantees, early payout, default clauses and flexibility. The best offer is the one with an acceptable cost and terms you can live with if things go wrong.
Key points
- Compare on the same measures, in dollars.
- Equalise terms where you can, or compare cost per month.
- Security and guarantees can outweigh a small price difference.
- Ask each lender the same questions in writing.
Checklist
- Same amount and similar term requested from each lender
- Cash received for each offer
- Total cost and cost per dollar
- Cost per month and repayment size
- Security and guarantees compared
- Payout and default terms compared
Having two offers is a good position to be in. It is also where many owners make a quick decision based on the wrong number, usually the repayment. A fair comparison takes about twenty minutes, uses figures already in the paperwork, and often changes which offer looks best. This guide sets out the method we recommend.
Step 1: Make the offers comparable
Where possible, ask both lenders to quote the same amount over a similar term with the same repayment frequency. If they will not, you can still compare, but you will need to rely more on cost per month. Make sure both offers are in writing and include every fee.
Step 2: Pull out the numbers
For each offer, write down:
| Item | Where to find it |
|---|---|
| Loan amount | Offer or schedule |
| Fees deducted from the advance | Fee section or settlement statement |
| Instalment and number of instalments | Repayment schedule |
| Balloon or final payment | Repayment schedule |
| Other fees over the term | Fee schedule |
| Term in months | Schedule |
Step 3: Calculate the five comparison measures
- Cash received = loan amount − fees deducted.
- Total cost = total repayments + all fees − loan amount.
- Cost per dollar received = total cost ÷ cash received.
- Cost per month = total cost ÷ term.
- Repayment size and frequency.
The offer comparison calculator does all five side by side and highlights the cheapest.
Step 4: Read the results properly
- If the terms are similar, cost per dollar received is the fairest price comparison.
- If the terms differ, look at cost per month as well, and think about how long you really need the money.
- Check repayment size against your slowest month. A cheaper loan with repayments you cannot carry is not cheaper in practice.
Step 5: Compare the risk terms
Price is half of the decision. Put the risk terms side by side:
| Term | Questions to ask |
|---|---|
| Security | Which assets are charged? Is property involved? |
| Personal guarantees | Who guarantees, and is it limited? |
| General security agreement | Does it cover all present and future assets? |
| Early payout | How is it calculated, and what does it cost? |
| Default events | Are they reasonable and clearly defined? |
| Flexibility | Can you redraw, vary or pause repayments? |
A slightly dearer loan that does not require a mortgage over your home, or that lets you repay early without heavy fees, can be the better choice. Our guides to personal guarantees and security and GSAs explain what each term means.
Step 6: Ask the same questions of both lenders
Send each lender the same short list of questions in writing: total repayable including all fees, early payout method with an example, security and guarantees required, default events, and any conditions before funding. Comparing written answers side by side removes a lot of guesswork. Our list of questions to ask a lender is a ready-made starting point.
Step 7: Decide, then document
Choose the offer that delivers what you need at an acceptable cost with risks you are comfortable carrying. Keep a copy of both offers and your calculations. If you later want to refinance, you will have a clear record of what you agreed to.
An illustrative comparison
A made-up electrical contractor has two offers for the same amount over eighteen months. Offer A has weekly repayments, an establishment fee deducted upfront and no general security agreement. Offer B has monthly repayments, no upfront fee and a GSA over all business assets. On the calculator, Offer B is slightly cheaper per dollar received, and its monthly repayments suit the contractor’s monthly invoicing better. But the GSA would complicate equipment finance the contractor plans next year. After asking, the lender behind Offer B agrees to limit its security to specific assets, and the contractor chooses B.
Common comparison mistakes
- Comparing repayments instead of total cost.
- Ignoring fees deducted from the advance.
- Forgetting the balloon.
- Comparing a one-year loan with a three-year loan on total cost alone.
- Treating security and guarantees as fine print.
Negotiating with two offers in hand
A competing offer is useful leverage. You can ask a preferred lender to match a lower fee, remove a deducted fee, adjust repayment frequency or narrow its security. Be honest about the other offer, and ask for any changes in writing.
Comparing different types of finance
Sometimes the two offers are not the same product: a term loan against a line of credit, or an invoice finance facility against a short-term loan. The method still works, with one adjustment. Work out what each would cost for the way you would actually use it. A line of credit drawn for three months of the year costs far less than its full limit suggests; an invoice facility’s cost depends on how quickly customers pay. Estimate realistic usage, then convert each to cost per dollar per month so they sit on the same basis. The invoice finance cost calculator helps with receivables facilities.
Speed and certainty as part of the comparison
If one offer can settle in days and the other in weeks, and your deadline is real, speed has a value. So does certainty: a firm approval with few conditions may be worth more than a cheaper conditional one that could still fall over. Note both alongside the numbers.
Want a third option to compare?
If you have offers and want to see whether something suits your business better, make one enquiry. There is no credit check when you first enquire, a real person reviews it and your details go to one lending partner rather than a crowd. Include the key numbers from your current offers in your enquiry so any alternative can be compared on the same basis.
Frequently asked questions
What if the offers have different terms?
Compare cost per month as well as total cost, and ask each lender to quote the other term if possible. A longer term usually costs more in total but less per month.
Should I tell a lender I have another offer?
You can. It sometimes prompts a better price or terms. Be honest, and do not overstate the competing offer.
How many offers should I compare?
Two or three well-matched offers are usually enough. Collecting many formal applications adds credit enquiries without much benefit.
Is the offer with the lowest repayment the cheapest?
Not necessarily. A lower repayment can come from a longer term, a balloon or fees deducted upfront. Total cost and cost per dollar received tell you which is cheaper.
How do I compare a loan with an invoice finance facility?
Convert both to cost per dollar per month. The invoice finance cost calculator and the true cost calculator help put them on the same basis.
Sources and further reading
We are an information site, so we do not rank lenders, publish interest rates or accept payment to feature a product. Every page is written and checked by our editorial team against official sources. Read our editorial policy and how we are funded.
