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By Laura Beckett, Editorial Lead, Business Finance. Published 20 May 2026. Last updated 13 July 2026.
Put two business finance offers side by side — one quoting "Representative APR 49%", one quoting "£75 fixed cost" — and most directors will instinctively reach for the APR as the serious number. It feels scientific. But APR was built to standardise year-long consumer credit, and on short-term business borrowing it behaves so badly that it routinely points the comparison in the wrong direction. Here is what APR actually measures, where it misleads, and the three questions that compare any two offers honestly.
What APR is, and what it assumes
APR — annual percentage rate — expresses the total cost of credit as if the borrowing ran for a full year, compounding included. For its home territory it works well: comparing two five-year consumer loans by APR is fair, because both actually run for years and the annualisation describes something real. The assumption baked in is duration. APR answers "what would this cost per year?" — which is only a useful question when the borrowing lasts anything like a year.
Where it breaks: short terms
Annualise a short loan and the number explodes without the cost changing. A worked illustration: a company borrows £500 for 60 days at our daily rate of 0.25%. Interest is £1.25 a day — £75 over the term — plus a £5 establishment fee. Representative example: borrow £500 for 60 days, repay £580. An early-settlement charge may apply. Express that same £80 total cost as an APR and compounding a 60-day cost across six-and-a-bit periods a year produces a headline in the hundreds of percent — for a loan whose whole cost is eighty pounds, known to the penny before signing. The APR did not measure the loan; it measured what the loan would cost if it were a different loan.
The distortion runs the other way too. A "Representative APR 8%" five-year facility sounds cheap, and per year it is. But five years of even a low rate is a lot of pounds: the same £500 carried for five years at 8% costs far more in total interest than £80 — and the borrowing was probably only needed for two months. Low APR over a long term can cost multiples of a high-APR short term. The percentage tells you the rate of cost. Only the pounds tell you the cost itself.
The comparison that actually works
Three questions compare any two business finance offers, in any format, without a calculator argument.
- Total pounds repaid. Add every component — interest, establishment or arrangement fees, monthly account fees, mandatory extras — and subtract the amount borrowed. That difference is the true cost. For our example above it is £80. For a facility quoting a clean rate but carrying a monthly fee, the fee often exceeds the interest on small balances.
- Over what term — and matched to what need? A 60-day cost should be compared against 60 days of the alternative, not a year of it. If the need is 60 days, five years of cheap-per-year borrowing is the expensive option.
- What happens if things change? Can you repay early, and what does that save? (With us: repaying early cuts the remaining daily interest; an early-settlement charge may apply — the agreement states it before you sign.) What happens if you are late? Is the worst case capped? Our loans carry a 100% total-cost cap: whatever happens, you never repay more than double what you borrowed. We explain it in understanding the 100% cost cap.
Why business lending gets to be clearer
A quirk of UK regulation is worth knowing here. APR disclosure rules are creatures of consumer-credit law, and lending to a limited company or LLP sits outside that regime — which is why business lenders can, and in our view should, quote in plain pounds and days instead of a metric designed for a different product. Freedom from a disclosure format is not freedom from clarity: the standard we hold ourselves to is that a director can state the total cost of their loan, in pounds, before signing. The wider framing is in CONC applies to consumer, not business credit and understanding APR and short-term business borrowing.
A worked side-by-side
An illustrative comparison, labelled as such, for a £500 need lasting 60 days. Option A, short fixed-cost loan: £80 total cost, known up front, done in 60 days. Option B, a business overdraft at a typical double-digit annual rate: cheaper in pure interest over the same 60 days — if the company already has the overdraft, if the bank does not charge arrangement or usage fees, and if the balance genuinely clears in 60 days rather than becoming furniture. Option C, a longer-term facility at a single-digit APR: lowest rate on paper, highest total pounds if the company carries it for years. The ranking depends entirely on the company's real need and discipline — which is the point. The honest comparison starts from the need, prices each option in pounds over that need's actual duration, and only then looks at the headline rate.
Rates are how lenders advertise. Pounds are how companies pay. Compare in pounds.