Loan comparison worksheet

Why headline rate is not the right comparison point

A commercial loan with a lower interest rate may cost more in total than one with a higher rate once arrangement fees, exit fees, early repayment charges, and monitoring fees are included. A loan with minimal fees but restrictive financial covenants may constrain your operations in ways that carry an indirect cost. The worksheet below helps you compare offers on a consistent basis.

These figures are illustrative and not a quote. Use actual terms from each lender's formal offer letter, not indicative terms from early conversations, which are subject to credit approval and final documentation.

Core terms to capture for each offer

• Facility type — term loan, revolving credit facility, asset finance, invoice finance
• Amount offered — confirm this matches the amount requested
• Term — months, and whether there is an extension option
• Interest rate — fixed or variable; if variable, the reference rate (e.g. base rate or SONIA) and the margin
• Arrangement fee — flat or percentage; whether it is added to the loan or payable upfront
• Exit / early repayment fee — percentage of outstanding balance or a fixed charge; whether it reduces over time
• Annual review or monitoring fees
• Total interest over full term — calculated on a level repayment basis
• Total cost of credit — interest plus all fees
• Monthly repayment — principal and interest combined

Security and guarantee requirements

Record the security package required by each lender separately, as this can differ substantially between offers of similar cost:

• Personal guarantee — limited or unlimited; to what value
• First or second charge over property — which property; estimated LTV
• Debenture over company assets
• Key man life insurance requirement
• Cross-guarantee from related entities

A cheaper facility that requires an unlimited personal guarantee from directors may carry significantly more risk than a marginally more expensive facility with a limited guarantee. The security column should inform the decision as much as cost.

Covenants and reporting obligations

Financial covenants are contractual obligations to maintain certain financial ratios — common examples include minimum interest cover (EBIT divided by interest expense), maximum leverage (net debt divided by EBITDA), and minimum liquidity. A covenant breach can trigger early repayment demands even if you are current on payments.

For each offer, record: which covenants apply, the thresholds set, how frequently they are tested, and what the remedy period is on a breach. Also note reporting requirements: some lenders require quarterly management accounts; others only require annual filed accounts. The administrative burden of covenant reporting should factor into your comparison, particularly for smaller businesses without dedicated finance staff.

Making the final comparison

Once you have populated the worksheet for each offer, rank them by total cost of credit first, then by covenant burden, then by security requirements. Where costs are close, the lender with the lighter covenant package and more flexible prepayment terms is usually preferable — commercial circumstances change, and maintaining optionality has value.

Cross-reference your cash-flow forecast against the monthly repayment figure for each offer to confirm the business can service the debt under a realistic downside scenario, not just the base case.