Fast business lending has changed what it means to borrow as a small business owner. Ten years ago, getting money into a business meant a bank appointment, two years of financials and a few weeks of waiting. Today an owner can apply on their phone at night, connect their bank account and have funds the next morning.
That speed is real progress. For a tradie waiting on a progress payment or a café owner replacing a coffee machine before the weekend, getting money in a day can be worth paying for. The problem is not the technology. It is how the price is shown.
A lot of short-term business lending in Australia is quoted as a factor rate rather than an interest rate. A factor rate is a flat multiplier. Borrow $50,000 at a factor of 1.20 and you repay $60,000. The cost is fixed at $10,000, no matter how long you take to repay it.
Most owners read 1.20 and think 20 per cent. It is not.
What a factor rate actually costs
Because the cost is fixed, the faster the loan is repaid, the more expensive the money becomes. Take that same $50,000 loan at 1.20, repaid in equal weekly instalments over six months. Worked out as an annual rate, that is roughly 73 per cent. Stretch the same factor over twelve months of weekly repayments and it is still around 37 per cent.
Compare that with a secured business loan from a mainstream lender in the high single digits, and the gap is obvious. But the owner never sees that comparison, because the two products are not quoted in the same language.
Daily or weekly repayments make it harder again. The money comes out of the account automatically, often before the owner has thought about it. A loan that felt affordable at signing can quietly take a large share of weekly takings.
Why the industry quotes it this way
I spent years on the lender side before I started my brokerage, so I understand why factor rates exist. They are simple. The borrower knows exactly what they will repay. There is no interest compounding to explain, and no early repayment calculation.
They also look cheap. A small number is easier to sell than a large one. And because much of this lending is for business purposes, it often sits outside the consumer credit rules that require an annual comparison rate to be shown.
None of that makes the product dishonest in itself. It does make it easy to misunderstand, and the people most likely to misunderstand it are the ones under the most pressure: owners who need money fast and are not in a position to shop around.
The technology can fix what it created
The same technology that made this lending fast can make it transparent. Every lending platform already calculates the repayment schedule to the cent. Converting that schedule into an annualised rate is a few lines of code. There is no technical reason a borrower should not see the annual cost on the same screen as the factor rate, before they accept.
Some lenders already show a dollar cost and repayment schedule clearly, and that helps. What is missing is a consistent way to compare products. Until the industry shows an annualised figure as standard, owners have to do the maths themselves.
What owners should check before they sign
If you are offered a factor rate, four questions will tell you most of what you need to know.
First, what is the total amount repayable, including every fee? Not the weekly figure, the total.
Second, how often are repayments taken, and from which account? Daily repayments behave very differently from monthly ones.
Third, is there any discount for repaying early? With a flat cost there often is not, which means paying off a loan early can save you nothing.
Fourth, what is the annualised rate? Ask the lender. If they will not give it to you, put the total repayable, the term and the repayment frequency into a factor rate calculator and work it out.
Then compare it against your other options. Sometimes the fast loan is still the right choice. A short gap on a job that is already invoiced, with a clear repayment date, can justify a high rate for a few weeks. What rarely makes sense is using expensive short-term money for long-term needs, or taking a second short-term loan to cover the repayments on the first.
Speed is not the same as value
The fintech lenders have done small business a real service by making finance fast and accessible. Owners who were shut out by the banks can now get funded on the strength of their bank statements. That is a genuine change for the better.
But speed and value are different things. The next step for this part of the market is to make the price as easy to read as the application. Until then, the most useful thing any business owner can do is turn the factor rate into an annual rate before they sign. It takes two minutes, and it can change the decision completely.