Not all business loans are created equal
We get it, all you want is a transparent business loan. Unfortunately, some lenders obscure the true total cost of your business loan by expressing interest rates as factor rates, surprising you with nasty hidden fees and charges, and enticing you with special offers. But not all loans are the same.
If you have a valuable asset (think a house, not that signed cricket bat you bought after that epic 1997 victory in The Ashes), and you can afford to wait months for financing, you’re in the minority of businesses who can look into a secured business loan with the big banks. Most business owners need financing quickly and need an unsecured loan.
Factor rates and why they’re deceptive
You may see some lenders expressing their interest rates in terms of a ‘factor rate’. We want you to be able to smell factor rates before you can see them because they stink. Factor rates deliberately make interest rates seem lower than they are. Remember fees and charges aren’t included when calculating the factor rate. That means a lower interest rate loan with fees and extra charges can end up having a larger total cost than a higher interest rate loan with no fees or charges. Read our guide on how to calculate the true cost of a business loan. So if you’re looking for a transparent business loan and you see factor rates, keep looking.
How to calculate factor rates and why we’ll never use them
A ‘factor rate’ is a multiplier applied to the amount loaned on unsecured fixed-term loans. A factor rate is expressed as a figure, such as 1.4 or 1.8. For example, if the loan amount is $100,000 and the factor rate is 1.2, you will repay $120,000 ($100,000 x 1.2).
So why won’t you ever see Moula use factor rates? Factor rates are misleading. We believe using a figure that can easily be misinterpreted is dishonest. Instead, we created a business loan calculator so you can see the true total cost of your loan and your repayment amounts upfront.
Transparent from the very beginning
Moula is built on a foundation of transparency. Moula’s CEO, Aris Allegos, has been co-leading an initiative with FinTech Australia, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and theBankDoctor.org to investigate how we can make business lending more transparent industry-wide.
“We’re absolutely focused on doing what’s right for Australian business owners. Transparency is at the core of our business model and a key value at Moula. We’re proud to be leading the market in defining best-practice transparency and disclosure.”
CAUTION: hidden fees and how to find them
One of the easiest ways to improve transparency is removing all fees. We believe this is key to sustainable growth for Moula and you – our customers.
Because many lenders don’t share our passion for transparency, confirming the true cost of a business loan is difficult, and comparing loans can be gruelling. Some lenders use hidden fees and charges to claw back profits from offering lower interest rates. Some lenders will hide fees and charges in your loan contract, which technically means they’re not hidden. But the fees are there and they can add up quickly. For example, if your lender charges a direct debit fee and your repayments are weekly or even daily this fee can add up to thousands of dollars across the term of your loan. Our transparent loans have absolutely no fees. We have the industry standard late payment fee but even then you have a 5 day grace period. So when we say we have no fees and hidden charges, we mean it.
Hidden fees to seek and avoid
Fees are where many lenders – both payday lenders and traditional lenders – trick people into paying more than they expected, with fine print and little asterisks. These are some of the most common types of fees:
- Application/Establishment/Origination Fee: Charged to cover the cost of setting up the small business loan or associated bank account.
- Documentation Fee: Charged for the time spent preparing your small business loan documentation.
- Direct Debit Fees: Charged every time a repayment transaction is made. If your loan frequency is high, this can add up to thousands of dollars.
- Withdrawal Fees: Charged for every withdrawal in Line of Credit loans.
- Monthly Fees: Ongoing monthly fees for the management of your small business loan.
- Early Repayment Fee: Many lenders will advertise that they don’t have any early repayment fees, however, you will still be charged the interest you would have paid over the life of the loan.
- Late Payment Fee: Charged for late payments. Most lenders usually have a five-day grace period but will then charge for a dishonoured/late payment.
- Amendment Fees: Charged if you request changes to your loan agreement. E.g. If you wanted to extend the loan period or decrease monthly payments.
Transparency can save you money
With so many fees being thrown around, it’s no wonder transparency can save you money – not to mention the financial stress involved with surprise fees and charges. If you have an asset you can use as security and can afford to wait weeks or months for financing, you can get lower interest rates on a secured loan. But when it comes to unsecured business loans, we are transparent, fast and you know exactly what the total cost of your loan is upfront.