# Business loan true cost calculator

> Turn a factor rate, fee and term into a true annual rate you can compare with a bank loan.

Use it in a browser at https://smallbusinessloan.co.nz/tools/true-cost, or call it through the site's MCP server at https://smallbusinessloan.co.nz/mcp.

## How this calculator works

Enter the amount you're borrowing, the factor rate, the term and any establishment fee. The calculator multiplies the amount by the factor rate, adds the fee and splits the total into equal repayments on the schedule you choose.

Next, the calculator finds the annual interest rate that would cost the same on an ordinary loan with those repayments. That's the [true annual rate](https://smallbusinessloan.co.nz/glossary/true-annual-rate). Banks quote their rates the same way, so you can compare the two directly.

The bank comparison under the result uses 12% a year as a round example. Your bank's actual rate depends on your business and the security you can offer.

## Common questions

### What is a factor rate?

A multiplier that sets how much you pay back. Borrow $50,000 at a factor rate of 1.2 and you repay $60,000, plus any fees.

### Why is the true annual rate so much higher than the factor rate?

A factor rate of 1.2 looks like 20%, but you start repaying straight away. With weekly repayments you owe the full amount for only the first week, and on average you owe about half of it over the term. Paying 20% for the use of about half the money works out to about 37% a year.

### Does paying the loan off early save money?

Usually not. The cost of a factor rate loan is set when you sign, so you pay the same total unless the lender offers an early repayment discount. Ask for the payout figure in writing before you decide.