Working Capital Loan Costs: Turn Australian Headline Rates Into Reality

In Australia, the true cost of a working capital loan is the interest plus all fees expressed as a yearly percentage of the money you actually use. To turn headline rates into real numbers, you need to add establishment and monthly fees, adjust for how long the money is borrowed, and compare everything on an annual percentage rate (APR‑style) or dollar‑per‑month basis.

That’s how you decide whether an overdraft, unsecured term loan or merchant cash advance is genuinely cheaper – or just looks that way.

Turning headline rates and fees into a single effective annual cost.

1. What actually makes up working capital loan cost?

Working capital facilities in Australia usually charge a mix of:

• Interest rate (fixed or variable)
• Establishment / documentation fee
• Ongoing line / facility / account fees
• Transaction fees (occasionally)
• Early repayment / break fees

For a quick primer on structures and typical price bands, see Working Capital Basics: Structures, Costs And Safe Limits For SMEs.

Common Australian rate and fee patterns

Indicative only – lenders change pricing regularly.

*Indicative bands only – not current offers or quotes.

The danger is clear: a low‑looking rate can still be expensive once you annualise all the extras. That’s why many merchant and daily‑debit products end up above 25–35% effective annual cost once fully calculated (see /insights/refinancing-high-cost-working-capital-into-safer-facilities).

2. Turning headline rates into real annual cost

To compare options, you need a consistent yardstick. Two practical ones:

1. Effective annual rate (APR‑style) – includes fees and the real time you borrow the money.
2. Total dollars per month – all interest and fees divided by the number of months you actually use the facility.

Simple effective annual rate formula

For a term‑style facility:

Effective rate ≈ (Total interest + all fees) ÷ Average balance ÷ (Term in years)

It’s rough but good enough to rank your options.

Worked example: overdraft vs unsecured loan

Assume you need $80,000 working capital for about a year.

Option A – Property‑secured overdraft

• Limit: $100,000 (secured by home)
• Average utilisation: $60,000
• Interest rate: 11% p.a.
• Line fee: 1% p.a. on full limit
• Monthly account fee: $20

Annual interest:

• 11% × $60,000 = $6,600

Line fee:

• 1% × $100,000 = $1,000

Account fees:

• $20 × 12 = $240

Total cost (1 year): $7,840
Average balance: $60,000
Effective annual cost:

• $7,840 ÷ $60,000 = 13.1% p.a.

Option B – Unsecured 12‑month term loan

• Amount: $80,000
• Rate: 18% p.a., principal & interest, 12 months
• Establishment fee: 3% ($2,400)
• No monthly fees

Approximate average balance over the year (straight‑line):

• ($80,000 + $0) ÷ 2 = $40,000

Approximate interest (18% on average balance):

• 18% × $40,000 = $7,200

Total cost (interest + fee):

• $7,200 + $2,400 = $9,600

Term: 1 year, average balance: $40,000
Effective annual cost:

• $9,600 ÷ $40,000 = 24% p.a.

So in this example the overdraft is materially cheaper – but it also loads the risk onto your home. For more on that trade‑off, see Choosing Property‑Backed vs Unsecured Working Capital For Your Business.