# The true cost of a short-term business loan, line by line

The honest way to judge a short-term business loan is to add it up in pounds. Not the headline rate, not the APR — the actual cash: what you borrow, what it costs, and what you hand back at the end. On a short loan that exercise is more revealing than any annualised percentage, because the percentage machinery was built for loans that last years, and a short-term facility lasts weeks. This piece breaks the cost down line by line, explains the 100% cost cap that sits over it, and shows why the headline APR is the wrong number to anchor on.

## The three lines that make up the cost

Strip a short-term business loan back and there are only three things to total: the principal you receive, the interest charged over the term, and any fee. The principal is not a cost — it is your money, returned. The cost is the interest plus the fee, and the **total repayable** is principal plus those two. That is the whole picture, and a lender that prices honestly will set it out in exactly those terms.

Take the Credicorp Business Bridging Loan as the worked structure. It lends £50 to £500, over 14 to 84 days, at 0.25% per day on the principal, with a one-time fee of £5. So a company that borrows £300 over 30 days pays interest of 0.25% of £300 a day — that is 75p a day — which over 30 days is £22.50, plus the £5 fee, for a total cost of credit of £27.50 and a total repayable of £327.50. Three lines, added up, in pounds. No annualisation, no guesswork.

## Interest versus fee — and why both are named

Interest and a fee are different things, and a clear loan names both rather than blending them into a single rate. The interest is the time cost: it accrues per day on the principal, so the shorter you hold the money, the less interest you pay. The fee is a fixed, one-time charge for setting the facility up — it does not move with time. Keeping them separate is what lets a borrower see the effect of repaying early: on a per-day interest structure, settling sooner cuts the interest line, while the fee is what it is. A blended headline rate hides that; two named lines show it. The operator’s guide to [flat fees versus APR](/guides/flat-fees-vs-apr/) goes further into why a flat, stated cost reads more honestly on a short term than an annualised one.

## The 100% cost cap

Over the per-day interest and the fee sits a hard ceiling: the total cost of credit is capped at 100% of the principal. In plain terms, whatever happens, the company never repays more than double what it borrowed. Borrow £300 and the most the loan can ever cost in interest and fees combined is £300 — the total repayable can never exceed £600, even in the worst case. The cap is not a marketing line; it is a structural limit on the cost, and it applies across the product range. It is the reason a short-term loan cannot quietly compound into something unrecognisable: there is a number it cannot pass.

## Why the headline APR misleads on a short term

APR — annual percentage rate — answers a specific question: what does this cost expressed as a yearly rate? That is a sensible question for a loan that lasts a year or more, because it lets you line up one against another. Apply the same machinery to a loan that lasts 30 days and the figure balloons, because a modest cash cost gets projected as if you would keep paying it, month after month, for a whole year — which on a short-term facility you simply do not. The annualised number can look alarming while the actual cash cost is small and defined.

Go back to the worked example: a £300 loan over 30 days costing £27.50. That is a real, knowable number. Annualise it and you get a percentage that says far more about the arithmetic of stretching 30 days to 365 than about what the company actually pays. On short terms, the figures that tell the truth are the **total cost of credit** in pounds and the **total repayable** in pounds. APR is the wrong lens — not because anyone is hiding anything, but because the lens itself distorts at this duration.

## Total it yourself before you borrow

Because the structure is just three lines, you can total any short-term loan in a minute, and you should. The operator publishes a [bridging-loan cost calculator](/calculators/bridging-loan-cost/) that does the per-day interest and the fee for you and shows the total repayable for a given amount and term — so the figure you are weighing is the real one, in pounds, for your company. When a quote lands, the useful questions are concrete: what is the total repayable, what is the total cost of credit, is it capped, and what changes if the company repays early or misses a payment? Those answers tell you more than any single percentage.

## The honest summary

The true cost of a short-term business loan is interest plus fee, added to the principal to give the total repayable — best read in pounds, not percentages. A 100% cost cap means the cost can never exceed the amount borrowed, so the worst case is bounded. And a headline APR, useful as it is for long loans, misleads on a few-week facility by annualising a cost you never carry for a year. Total it yourself, ask for the cash figures, and judge the loan on what it actually costs.

## Related
- [How short-term business finance is priced, in plain English](/articles/how-short-term-business-finance-is-priced)
- [Working capital vs a term loan: matching finance to the need](/articles/working-capital-vs-term-loan)
- [Guide: flat fees vs APR (operator)](https://credicorp.co.uk/guides/flat-fees-vs-apr/)
- [Bridging-loan cost calculator (operator)](https://credicorp.co.uk/calculators/bridging-loan-cost/)
- [Products at Credicorp Limited — what the bridging loan is for](/products/)