Quick answer
To work out what a short-term business loan really costs, add up four dollar figures: the interest for the whole term, the establishment and valuation or legal fees, any monthly account fees, and the exit or discharge costs. Then divide by the months you'll actually hold the money. Most online repayment calculators leave out the fees and the exit, which is where short-term loans differ from a bank term loan.
Key points
- Cost in dollars for the whole term, not a monthly repayment alone.
- Interest-only and capitalised loans have a lump sum due at the end.
- Fees and exit costs are often missing from bank-style calculators.
- Divide the total by months held to compare a 3-month and a 12-month quote fairly.
Search for a business loan repayment calculator and you’ll find plenty that ask for an amount, a rate and a number of years. They work well for a five-year bank loan. They work badly for a loan you’ll hold for three, six or twelve months, because the cost of a short-term loan hides in places those calculators never look.
This guide shows you how to do the sum yourself, with nothing more than a quote from the lender and a calculator. You’ll see what to add, what to ask for, and what $50k, $250k and $1m can look like on paper.
What does a short-term business loan really cost?
Four buckets, all in dollars:
- Interest for the whole term. Not the monthly figure: the monthly figure multiplied by every month you’ll hold the loan.
- Upfront fees. Establishment or application fees, and for a secured loan, the valuation and legal or settlement costs.
- Ongoing fees. Monthly account-keeping or line fees, if any.
- Exit costs. A discharge or exit fee, and any break cost if you pay out early.
Add the four and you have the total cost of borrowing. That one number, in dollars, is the only figure that lets you compare a quote from one lender with another.
business.gov.au is blunt about why this matters: non-bank lenders “may charge higher interest rates and fees than traditional banks” while often being more flexible on criteria (business.gov.au). Flexibility and speed are real value, but you should price them, not guess at them.
Why do bank-style calculators get short-term loans wrong?
Three reasons.
- They assume equal instalments that pay the loan down. A short-term loan is often interest-only or has interest added to the balance, with the full amount due at the end.
- They leave out fees. Establishment, valuation, legal and exit costs sit outside the “amount, rate, years” boxes.
- They don’t ask how the loan ends. A short-term loan is built around an exit: a sale, a refinance, an invoice being paid. The payout is the big number, and most calculators never show it.
Moneysmart’s own interest-only calculator makes the same point for home loans: because the balance isn’t reduced during the interest-only period, these loans generally cost more over time than a comparable loan paid down from day one (Moneysmart). On a short-term loan you accept that on purpose, in return for lower cash outlay now. You just need to know the price.
How do you calculate it? The five-line method
Ask the lender for a written quote, then fill in this list:
| Line | What goes in |
|---|---|
| A | Amount you borrow |
| B | Interest for the full term (monthly interest × months, or the total they quote) |
| C | All upfront fees (establishment, valuation, legal, settlement) |
| D | All ongoing and exit fees |
| E | Total cost = B + C + D |
Then two checks:
- Total to pay back = A + E.
- Cost per month of use = E ÷ months you’ll actually hold the money.
The second check is the one most owners skip. A $12,000 cost over 12 months is $1,000 a month. A $9,000 cost over 3 months is $3,000 a month. The shorter loan has the smaller total and the bigger monthly price, and which matters depends on your deadline. Our guide to the cost of waiting shows how to weigh that against what a delay costs you.
Interest-only or capitalised: which sum applies?
Interest-only. You pay the interest each month. The amount borrowed comes due at the end. Monthly cash outflow is small and steady; the lump sum at the end is the full principal.
Capitalised (rolled-up) interest. No monthly payment. The interest is added to the balance, so the payout at the end is the amount borrowed plus all the interest. This suits a business whose cash arrives in one go, such as a sale or a settlement, but it needs a firm exit date.
Principal and interest. The loan is paid down with each repayment. More common on unsecured loans and on longer terms. Lower balance at the end, higher repayment each month.
Ask which one the quote is. The same $100k can have three very different monthly repayments depending on the structure, and a repayment calculator that doesn’t know the structure can’t tell you the right answer.
Worked example: three amounts, by hand
These are illustrative round numbers, not a quote or an indication of what any lender will charge. Use your own quote in the same layout.
A $50k unsecured loan, 6 months
A café owner needs $50k for stock and a fit-out deposit. The lender quotes a total payback of $57,500, repaid weekly.
- Total cost: $57,500 − $50,000 = $7,500
- Cost per month of use: $7,500 ÷ 6 = $1,250
Because repayments reduce the balance each week, the money isn’t held for the full six months on average. That makes the true “per month of use” figure a little higher than it looks. It’s another reason to ask for the total, not just the repayment.
A $250k property-backed loan, 6 months, interest-only
A builder needs $250k to bridge to a progress payment. The lender quotes monthly interest of $4,000, an establishment fee of $5,000, valuation and legal costs of $2,500, and a discharge fee of $500.
- Interest: $4,000 × 6 = $24,000
- Fees: $5,000 + $2,500 + $500 = $8,000
- Total cost: $32,000
- Total to pay back: $282,000, of which the $250,000 principal is due at the end
- Cost per month of use: $32,000 ÷ 6 ≈ $5,333
If the progress payment lands in month four, the loan may be repayable early, but check whether interest is charged for the full six months. If it is, finishing early saves nothing on the interest line, and you pay $32,000 for four months of use.
A $1m loan, 3 months, capitalised interest
A developer needs $1m to settle a purchase before a refinance. The lender quotes capitalised interest of $12,000 a month, with $15,000 of fees in total.
- Interest: $12,000 × 3 = $36,000
- Fees: $15,000
- Total cost: $51,000
- Payout at the end: $1,051,000
- Cost per month of use: $51,000 ÷ 3 = $17,000
There is no monthly repayment, so the cash flow is easy. But the payout is fixed and the date matters: if the refinance slips a month, interest keeps adding. That’s why a clear exit belongs in the calculation. See our guide on exit strategies for short-term property loans.
What should you ask for before you plug in numbers?
Get these in writing, so you’re calculating from the real quote and not a headline:
- The total amount to repay for your exact amount and term.
- Whether interest is interest-only, capitalised or principal and interest.
- Every fee, by name and dollar value, upfront, ongoing and at exit.
- Whether interest is charged for the full term if you repay early.
- What happens to cost if the exit is late: default interest, extension fees or a higher monthly figure.
Comparison rates are a consumer-credit tool, so a business lender may not have one to show you. Don’t wait for it. The five-line method above gets you a better comparison anyway, and it takes five minutes.
What changes at different amounts?
- Around $20k to $100k, unsecured. Usually a single total payback with weekly or daily repayments. Compare the total, and the cost per month of use.
- $100k to $250k. The choice between unsecured and property-backed starts to bite. Secured loans add valuation and legal costs but can run interest-only.
- $500k and above. Fees are bigger in dollars and the exit matters most. Run the calculation with a slow exit as well as a quick one.
If you’re not sure which route your amount points to, the funding speed finder is a two-minute way to see which side of the line you’re on, and how much can my business borrow explains how each limit is set.
Rules that protect you on the contract
Since 9 November 2023 the unfair contract terms laws have applied to loans to small businesses where the upfront price is up to $5m, and they now carry civil penalties for lenders using unfair standard-form terms (see ASIC’s media release on the regime and small business). It’s not a reason to skip reading the contract. It does mean a term that lets a lender change fees at will, or that applies a large penalty with no link to loss, is worth raising with the lender and your accountant before you sign.
Check the numbers, then check your options
If you’re running these sums because a date is coming up, the next step is a real quote on your own amount and term. Tell us how much you need and by when, and we’ll look at which route can realistically land in time: unsecured for smaller amounts, property-backed when the amount or the deadline is bigger. Check your options here whenever you’re ready.
Ready to put real numbers on it?
The calculation only gets useful when it’s your amount, your term and your exit. Here’s how we make that easy.
- It takes about 60 seconds, and there’s no credit check when you enquire. Asking what’s possible doesn’t touch your credit file.
- We don’t send your details to a pile of lenders. One person looks at your situation and works out the route that fits, so your phone isn’t going to light up.
- A real person will call you. Someone who knows business lending will talk you through the structure, the fees and the exit, in dollars.
- Please fill the form in accurately. The right amount, term, purpose and property details mean the first option we talk about is one that can actually happen.
On timing: smaller unsecured amounts can sometimes be funded the same day, and property-secured loans between $20k and $250k are possible same day too. Larger amounts, up to $5m, are possible within 24–48 hours once the file is complete. Nothing is guaranteed until a lender has assessed your application, but you can find out where you stand today.
Frequently asked questions
Why doesn't a standard business loan calculator work for a short-term loan?
Most are built for a loan that is paid down in equal instalments over years. A short-term loan is often interest-only, or has interest added to the balance, with the whole amount due at the end. It also carries upfront fees that a basic calculator ignores.
What is the difference between interest-only and capitalised interest?
With interest-only, you pay the interest each month and the full amount borrowed is due at the end. With capitalised interest, the interest is added to the loan instead, so there is no monthly payment but the payout at the end is larger.
What fees should I add to a short-term loan calculation?
Ask for every one in writing: establishment or application fee, valuation, legal or settlement costs for a secured loan, any monthly account-keeping fee, and the discharge or exit fee. Add them to the interest to get the true dollar cost.
Will a lender give me a comparison rate on a business loan?
Don't count on it. Comparison rates are a consumer-credit tool, so a business lender may not provide one. Ask instead for the total amount you will pay back, in dollars, for the exact amount and term you want.
How do I compare a 3-month loan with a 12-month loan?
Divide the total dollar cost by the number of months you will hold the money. That gives a cost per month of use, which is a fairer comparison than the headline repayment.
Is the cost of a business loan tax deductible?
Interest on a business loan is generally deductible, and business.gov.au notes it. Some fees are treated differently, so check how your accountant will treat each cost before you run the numbers.
Can I repay a short-term loan early and save money?
Sometimes, but it depends on the contract. Ask whether interest is charged for the full term regardless, and whether there is an early exit fee, before you assume an early payout saves anything.