Business loan interest rates in Canada: how to read and compare them
There is no single business loan rate in Canada. There are four different ways lenders quote a price, and they do not line up on their own. This guide shows how each one works and how to turn any of them into a number you can compare.
By Clario Capital Team · Published
Why nobody can quote you “the” rate
Rates are set by each lender based on your business’s credit, performance and the terms of the deal. Two businesses asking for the same amount on the same day can receive very different offers, and so can one business asking two different lenders. Any website that shows a single “current business loan rate” is showing an average or a best case, not your price.
Size matters too. The Competition Bureau’s January 2026 market study notice cites the 2024 OECD Scoreboard, which found Canadian small and medium-sized businesses paid 1.64 percentage points more in interest than large businesses in 2021 and 2.10 points more in 2022. The OECD average gap was 0.93 and 0.90 points. In plain terms: smaller Canadian firms pay a bigger premium than their peers elsewhere, which makes comparing offers worth the effort.
The four ways a price gets quoted
Annual interest rate
Looks like: “10% a year”
Interest is charged on the balance you still owe, so it shrinks as you repay. Common on bank term loans and lines of credit. Can be fixed or variable.
Factor rate
Looks like: “1.25”
A multiplier on the amount funded. 1.25 on an advance means you repay 1.25 times the amount, no matter how fast. Common on merchant cash advances and some short-term products.
Fees
Looks like: “3% origination” or a flat dollar charge
Charged once at the start, or along the way. Often deducted from the money you receive, which quietly raises the real cost.
Holdback or remittance rate
Looks like: “10% of daily card sales”
Not a price at all. It sets how fast you repay a revenue-based product. The price is still the total you repay versus the cash you receive.
Factor rate vs interest rate: the key difference
An interest rate is a yearly price on money you still owe. A factor rate is a one-time price on the whole amount, whatever the term. That single difference explains most of the confusion.
Here is an illustrative example. The numbers are made up to show the mechanics, not a quote.
| Illustrative advance | Repaid over 12 months | Repaid over 6 months |
|---|---|---|
| Amount received | $30,000 | $30,000 |
| Factor rate | 1.25 | 1.25 |
| Total repaid | $37,500 | $37,500 |
| Payment each business day | about $144 | about $288 |
| Estimated annual rate | about 46% | about 92% |
Same factor rate, same $7,500 cost, and the annual rate doubles when the term halves. That is why a factor rate of 1.25 cannot be compared with a 10% interest rate, and also why “25%” is the wrong way to describe a 1.25 factor. You only learn what a factor rate really costs once you know how quickly it is repaid.
How fees move the real rate
Fees get overlooked because they are often taken off the top. In this illustrative example, a two-year loan at 10% a year on $30,000 has payments of about $1,384 a month and costs about $3,224 in interest. Add a $1,500 fee taken from the funding and you receive $28,500 but still repay the same amount. The total cost rises to about $4,724, and the estimated annual rate on the money you actually received goes from 10% to about 15.2%.
The rule of thumb: always work out the rate on the cash that reaches your account, not on the amount written at the top of the agreement.
How to turn any quote into one comparable number
- Cash in: write down the amount that will actually be deposited after every fee.
- Cash out: write down every payment you will make and how often, until the balance is zero.
- Cost: total paid minus cash in. This is what the money costs if everything goes to plan.
- Annual rate: the rate that links the cash in to the payments over time. You do not need to do this by hand. Our business loan calculator does it for a monthly loan and a daily or weekly factor-rate offer.
- Payment check: put the payment next to your slowest month of sales. A cheap offer you cannot carry is not cheap.
What tends to move your rate
- Type of product. The Competition Bureau notes that term loans often come with lower interest than other forms of commercial lending, and that credit card interest can be higher than secured debt.
- Security. A loan backed by equipment, property or a strong guarantee is less risky for the lender, and usually priced that way.
- Time in business, revenue and credit score. Funding through Clario’s lender network depends on these, so they shape both the amount and the terms a lender offers.
- Credit history. Both the business’s and, for smaller firms, the owner’s.
- Term and payment rhythm. Shorter terms with frequent payments usually carry a higher annual rate, as the example above shows.
- Competition. The more written offers you hold, the easier it is to see which one is priced fairly for your situation.
Quick answers
Is a lower factor rate always better?
Only when the terms are the same length. A lower factor rate repaid over a much shorter term can cost more per year than a higher one repaid slowly. Compare annual rates, then payments.
Is a variable rate riskier than a fixed one?
A variable rate moves with the lender’s base rate, so your payment can go up or down. A fixed rate costs the same for the whole term. Neither is automatically cheaper. Ask which one the offer uses and how often it can change.
Does paying early save money?
On an interest-bearing loan it often does, because interest stops on the balance you have repaid, unless there is a prepayment penalty. On most factor-rate products the total is fixed, so paying early does not reduce it unless the agreement says so. Get the answer in writing.
Can Clario Capital tell me my rate?
No, and nobody honest can before a lender has reviewed your file. Clario Capital is not a lender. One application is shared with our network of lending partners, each lender sets its own rate, and you compare the written offers. Our service is free, individual lenders may have their own fees which are disclosed, and there is no obligation to accept any offer. Start one application or read how Clario works. For more on who offers which products, see business lenders in Canada, compared.
Sources
This guide is general information for Canadian business owners, not financial, legal or tax advice. Clario Capital is not a lender. Funding approval, rates and terms are not guaranteed and are set solely by our lending partners. Any examples are illustrative. The actual lender written terms govern any offer you receive.