When you’re running a small business, securing the right finance can make all the difference—whether you’re upgrading equipment, managing cash flow, or investing in growth. But when the paperwork arrives and the lender starts throwing around terms like “balloon payment” or “secured vs. unsecured,” things can quickly get overwhelming.
Misunderstanding key financial terms can lead to poor decisions, hidden costs, or missed opportunities. That’s why it pays to get clear on the language used in business finance—especially when applying for small business loans or equipment finance in Australia.
In this article, we’ll unpack five common finance terms that borrowers often confuse—and explain what they really mean, in plain English.
Table of Contents
- 1. Interest Rate vs. Comparison Rate
- 2. Secured vs. Unsecured Loans
- 3. Balloon Payment
- 4. Principal vs. Total Repayable
- 5. Line of Credit vs. Term Loan
- Conclusion & Next Steps
1. Interest Rate vs. Comparison Rate
These two terms sound similar but mean different things—and confusing them can cost your business more than you expect.
Interest Rate
This is the base percentage charged on the amount you borrow. It’s the headline number most lenders advertise.
Comparison Rate
This includes the interest rate plus most fees and charges, giving you a clearer picture of the total cost of the loan.
Why it matters:
- The interest rate alone doesn’t account for extra fees.
- The comparison rate helps you compare loan products on a more even playing field.
- Always look at both when reviewing small business loan offers in Australia.
2. Secured vs. Unsecured Loans
This is a key difference that affects your eligibility, loan terms, and risk exposure.
Secured Loan
You offer an asset (like equipment or a vehicle) as collateral. If you default, the lender can take the asset.
Unsecured Loan
No collateral is required. Because it’s riskier for the lender, interest rates are typically higher.
Pros of Secured Loans:
- Lower interest rates
- Higher borrowing limits
- Easier approval if you have valuable assets
Pros of Unsecured Loans:
- Faster approval
- No need to tie up business or personal assets
- Ideal for short-term cash flow needs
3. Balloon Payment
A balloon payment is a larger-than-usual final repayment on a loan, common in equipment finance deals.
How it works:
- Your regular repayments are reduced because part of the loan is deferred.
- At the end of the term, you pay a lump sum to finalise the loan.
Why business owners like it:
- Lower monthly payments free up cash flow.
- It can help match repayments to the asset’s earning potential.
What to watch out for:
- You must plan ahead to afford the final payment.
- Refinancing or selling the asset might be required to cover the balloon.
4. Principal vs. Total Repayable
These two figures are often confused, especially when reviewing loan schedules.
Principal
This is the original amount you borrow.
Total Repayable
This is the full amount you’ll pay over the life of the loan—including interest and most fees.
For example:
- Borrowed amount (principal): $50,000
- Interest and fees over 5 years: $10,000
- Total repayable: $60,000
Tip: When evaluating business loans, don’t just focus on the principal—understand the full financial commitment.
5. Line of Credit vs. Term Loan
These two forms of finance serve different needs and offer very different repayment structures.
Line of Credit
- Flexible borrowing limit you can draw from as needed
- Interest only charged on what you use
- Ideal for managing cash flow fluctuations
Term Loan
- Fixed amount borrowed upfront
- Regular repayments over a set term
- Commonly used for purchasing equipment or funding major expenses
Which one suits you?
- Choose a line of credit if your business has unpredictable cash flow.
- Go with a term loan for larger, planned purchases like machinery or vehicles.
Conclusion & Next Steps
Financial jargon doesn’t have to stand in the way of smart business decisions. When you understand key terms like “comparison rate”, “balloon payment” and “secured vs. unsecured”, you’re better equipped to choose the finance solution that genuinely fits your needs.
At Capital Plus Finance, we’re here to take the guesswork out of business lending. Whether you’re looking at equipment finance, small business loans, or cash flow solutions, we’ll help you make sense of your options—and connect you with over 40 trusted lenders across Australia.
Got questions about a loan term or quote you’ve received?
Talk to us today and let’s break it down together.
