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The right business loan can do wonders for your SME, giving you the breathing space to take on new opportunities and grow. But with rates, fees and terms being represented in different ways, it’s not uncommon to find yourself struggling to understand if a lender will provide the flexibility that your business requires.
Due to ambiguous phrasing and a lack of transparency, you could end up paying more overall when repaying your loan early, mainly due to fees and the way interest is recalculated. So, it’s important to understand how early repayment fees, interest calculations and overpayment allowances impact how much you’d actually pay if your business grows faster than expected.
To help you along, we’ve created a quick and easy guide comparing some of the most popular alternative finance products currently available to UK SMEs. We also explain in laymen’s terms what their early repayment and settlement terms could mean if you’re in a position to repay before the end of your agreed term.
1. Fleximize
Claims:
- “You can make overpayments online for free”
- “No hidden or early repayment fees”
- “If you repay early, your interest will be recalculated so that you only pay for the time you had the loan”
What this means in practice:
Fleximize’s relationship-driven approach to lending means that in practice, you could pay off the total loan early without any early repayment fees. You’d also pay less overall if you were to settle your loan early, as Fleximize will recalculate the interest so you only pay interest for the time you have the loan. On average, Fleximize customers save 44% on interest if they repay early. You can also make as many overpayments as you like without restrictions or fees.
Worth noting:
Fleximize also has no set-up, application or arrangement fees if you apply directly.
2. Funding Circle
Claims:
- “You cannot partially pay down a loan”
- “No fees for full early repayment”
- “Interest calculated is on the amount you have outstanding”
What this means in practice:
If you were to repay your entire Funding Circle loan in full, you would not incur any early repayment fees and your interest rate would be recalculated to only cover the time that you had the loan.
However, you can’t make overpayments or one-off payments throughout the loan term, so if you’re growing faster than expected you would either have to stick with your arrangement and pay off the loan as agreed or pay off the entire loan at once.
Worth noting:
It’s also worth bearing in mind that there’s an additional 1% annual servicing fee on the amount outstanding on any loan with Funding Circle. There are also built in arrangement fees with Funding Circle loans, which can go up to 6% on unsecured and secured business loans.
3. iwoca
Claims:
- “You can make repayments at any stage of your loan period, without incurring any penalties”
- “If you wish to keep the funds for less than the full 12-month term you can choose to repay early for free”
- “We only charge interest for each day you have the funding”
What this means in practice:
If you wanted to make overpayments to your iwoca loan, you’re able to so at anytime to reduce the interest you pay. You can also pay off your loan in full at any point without incurring any fees.
Worth noting:
iwoca’s Flexi-Loan product only goes up to 12 months for direct customers, so if you want to pay your loan off over a longer term then it may be best to look at their ‘Business Loan’ product. However, this comes with a 6% funding fee, spread across your first few repayments.
4. Spotcap
Claims:
- You can make lump sum overpayments at no cost*
- “We don’t penalise you for early settlement”
- “The rate of interest…is only charged on your outstanding balance”
What this means in practice:
If you want to make overpayments, you can do so for free, and if you’re lucky enough to pay off your loan early, you can do so without being charged any fees.
Worth noting:
Bear in mind that Spotcap charges a 2% arrangement fee on every loan. Their loans also start at £50,000, so if you need a small amount of finance it may be best to look elsewhere.
5. Esme
Claims:
- You can make overpayments and pay early without any penalty*
- “No early repayment charges”
- “Interest is charged on the full loan amount”
What this means in practice:
If you wanted to make overpayments to your Esme loan, you’d be able to do so without being charged any penalties. You can also pay off your loan in full at any point without incurring any fees, and you’d save money if you settled your loan early.
Worth noting:
Esme don’t currently share any information on their website about how long their approval process is. Bear this in mind if you’re looking for funding fast.
6. Nucleus Commercial Finance
The below is based on Nucleus Commercial Finance’s cash flow loan.
- “We do not charge an early repayment fee, but you will need to settle the full amount owed, as indicated in your initial agreement, in order to terminate the contract early. You may be eligible for a 10% discount, please get in touch if this is something that you would like to negotiate."
What this means in practice:
If you want to settle your cash flow loan early, you won’t be charged any additional fees, but you will need to pay the whole loan off at once in order to save up to 10% of the total interest.
Worth noting:
You need a minimum of three years’ trading history to apply for Nucleus’ cash flow loan. If you’ve been trading for a shorter amount of time, it may be worth looking elsewhere.
7. Boost Capital
Claims:
- “We don’t charge a penalty for paying your loan off early. In fact, you may be eligible for a small discount on the remaining repayments.”
- “Our loans don’t have a rigid monthly repayment amount. Instead, you can choose to make either daily or weekly repayments.”
What this means in practice:
If you want to settle your Boost Capital loan early, you won’t be charged any additional fees. However, they do not recalculate the interest on the loan, so you’ll be required to repay the total interest back whether you reach full term or not. It is unclear on their website how much the ‘small discount’ might be if you were eligible for this.
There’s no information currently available on the Boost Capital website about making overpayments.
Worth noting:
Boost Capital use factor rate to represent the cost of the loan so it can be hard to compare the true cost of the loan. You can compare quotes with different representative rates here.
8. Ferratum Business Finance
Claims:
- You can make overpayments without being charged fees*
- “You can repay the loan at any time with no pre-payment penalties”
- Interest is charged on outstanding principle*
What this means in practice:
If you want to settle your Ferratum business loan early, you won’t be charged any fees. You can also make overpayments for free, and if you repaid your loan early you would repay less.
Worth noting:
Ferratum charge a 2.5% origination fee for all of their business loans. The maximum amount you can borrow is also £50,000, so if you need a higher amount of finance then it may be worth looking elsewhere.
9. Newable
Claims:
- You can make overpayments*
- “No early repayment fees”
- Interest would be recalculated if you were to repay early*
What this means in practice:
If you want to settle your Newable business loan early, you won’t be charged any fees. You can also make overpayments for free, and if you repaid your loan early you may repay less as your interest will be recalculated.
Worth noting:
Newable charge a one off 4% arrangement fee on all finance. They're also only able to offer unsecured business loans of over £26,000. If you need a smaller amount of working capital for your business, it may be worth looking elsewhere.
Key takeaways
When comparing business finance providers, it’s crucial to bear in mind that upfront costs don’t always reflect how expensive the overall loan works out to be in practice. If you’re a small business owner, focus on the lenders who don’t penalize you for growing faster than expected, and be sure to speak to your relationship manager or broker regarding exactly how much you’ll be charged if you are in a position to repay early.
If you want to supplement your research by comparing the cost of your business loan quotes yourself, take a look at our award-winning rate comparison tool which provides an easy way to compare finance products and fees.
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Please note that all information is correct at the time of publication. Many of the lenders featured above don’t include basic information about early repayment fees or interest recalculations on their websites. As such, any statements marked with an (*) were obtained from live chat conversations / email / or telephone directly with the lender at the time of publication.
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