2 min read
What flat rate means
A flat rate is calculated on the original loan amount for every period of the term, regardless of how much you have repaid. If a lender quotes 1.5% per month flat on a £100,000 facility over 12 months, the interest charge is £1,500 per month throughout — even in month 11, when your outstanding balance may be a fraction of the original draw.
Flat rates are common in asset finance and short-term commercial lending. They are simple to quote and easy to multiply, which is precisely why directors should interrogate them before comparing across providers.
What APR means
Annual Percentage Rate (APR) expresses the true annual cost of borrowing, accounting for the declining balance, compounding, and mandatory fees included in the facility. Because the denominator shrinks as you repay, the APR on a flat-rate product is consistently higher than the headline flat figure.
As an illustrative example only: a 1.5% per month flat rate on a reducing-balance repayment schedule translates to an APR in the region of 30–35% — a material difference when modelling cash-flow impact. Treat any figure here as directional, not a quote for your facility.
How to compare offers meaningfully
Ask every lender for the total amount repayable and the APR equivalent. Where a lender declines to state APR (permissible in exempt B2B lending), request a full amortisation schedule and compute the internal rate of return yourself, or have your accountant do so.
- Confirm whether arrangement fees are included in the APR or quoted separately
- Check for early-repayment charges that inflate the effective rate on short-tenor draws
- Compare like-for-like: a 12-month flat-rate facility versus a revolving line priced on drawn balance are structurally different products
Frequently asked questions
Is a lender required to quote APR for a business loan?
No. FCA APR disclosure rules apply to regulated consumer credit. Commercial lending to limited companies and LLPs is generally exempt, so lenders may quote flat rates, factor rates, or monthly rates without stating an APR. You should request equivalent APR for your own comparison.
Which is always lower — APR or flat rate?
On a reducing-balance repayment product, flat rate is always lower than the equivalent APR for the same facility. On a bullet (interest-only) structure, they converge because the principal does not reduce until maturity.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.