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Flat rate vs APR: why a 5% business loan can cost nearly 10% a year?

A flat rate and an APR can describe exactly the same loan. The difference is what the percentage is measured against. A flat rate is measured against the original amount you borrowed. An APR is measured against the amount you still owe as you repay it. Because a business loan with monthly repayments is, on average, only about half outstanding over its life, the APR comes out at nearly twice the flat rate. So if one lender quotes "5% flat" and another quotes "9% APR", the 9% quote may well be the cheaper of the two.

28 October 2026