APR (Annual Percentage Rate)

APR was introduced as a standardised cost figure so that borrowers could compare lenders without having to unpick each provider's fee structure. For consumer credit the FCA mandates how APR is calculated. The UK SME business-finance market is less tightly regulated on this point — unregulated business lending is not required to publish APR in the same prescribed way — but reputable lenders generally do, because it is the cleanest comparable cost figure.

APR is most meaningful for fixed-instalment products such as term loans, hire purchase and asset finance, where the repayment schedule is predictable. It is much less useful for revenue-linked products such as merchant cash advances, which use factor rates and where the actual time-to-repay varies with trading. For those, the comparable figure is the total cost of capital, sometimes annualised as an indicative APR equivalent.

When comparing UK SME loan offers, always check whether the quoted rate is APR, a flat interest rate, or a factor rate. A 9 per cent flat rate over three years is materially more expensive than 9 per cent APR over the same term, because flat rates do not reflect the reducing balance.