Gross loan vs net advance: why a private business loan pays out less than the loan amount

On a private business loan, the gross loan is the amount you’ll owe under the contract, and the net advance is the cash that actually reaches you, or the people you’re paying, on settlement day. The gap between them is normally fees, legal costs, payouts of existing debts and any interest prepaid at the start. Size the loan on the net figure you need, not the headline.

Owners are often caught out by this the first time they borrow from a private lender. They ask for $300k, sign for $300k and see something noticeably smaller arrive. Nothing has gone wrong; the money has simply been spent at settlement on things the loan was always going to pay for. The trick is seeing those things before you sign.

Why is the money I receive less than the loan amount?

A private business loan is usually structured so that its own costs, and anything that has to be cleared to put the lender’s security in place, are paid out of the loan itself. That’s convenient: you don’t need cash on hand to borrow. But it means the loan has a few jobs to do before it does yours.

Think of settlement as a list of payments made from one pot. The pot is the gross loan. Each line on the list is paid, and whatever remains is the net advance.

What typically comes out at settlement?

Every lender’s list is a little different, but these are the usual items.

Item	What it is	What to ask
Establishment fee	The lender’s fee for setting up the loan	Is it a fixed amount or based on the loan size?
Legal and documentation costs	Preparing the loan documents and security	Is there an estimate or a cap?
Registration and title costs	Registering the mortgage or caveat, title searches	Which government fees apply in your state?
Valuation	Confirming the property’s value, where required	Has it already been paid separately?
Prepaid or retained interest	Interest for an agreed period, taken up front	How many months, and is any unused amount refunded?
Payout of existing debts	ATO debt, an old private loan, a caveat holder	Paid direct to them at settlement?
Broker or referral fees	If someone arranged the loan	Disclosed in the documents?

Paying out debts at settlement is often the whole point of the loan. If a business is clearing ATO tax debt or refinancing an expensive caveat, those amounts go straight to the creditor and the title is cleaned up the same day. It’s still part of the gross loan, so it still has to fit inside the equity.

How does the interest choice change the numbers?

Private loans commonly offer three ways to handle interest, and each one changes the gap between gross and net.

• Paid monthly. No interest is deducted at settlement, so the net advance is larger. You make repayments from cash flow along the way.
• Prepaid. Interest for an agreed period is taken at settlement. The net advance is smaller, but there’s nothing to pay during that period. Useful when cash flow is tight while a project, contract or sale plays out.
• Capitalised. Interest is added to the balance as it accrues. The net advance is larger, but the amount owing grows over the term, so there must be enough equity and a clear exit for the final figure.

None of these is cheaper by default. They move the cost around in time. Match the choice to how and when the loan will be repaid.

Before you lock anything in, a quick no-obligation enquiry lets us map the gross and net figures against your property and plan. There’s no credit check when you enquire.

How do you work backwards from the amount you need?

Start with the cash you genuinely need to land, then build the loan up:

1. The working amount. What will the business actually spend? Quotes, an ATO statement or a purchase contract make this concrete.
2. Debts that must be cleared at settlement, if any.
3. Costs and fees from the lender’s estimate.
4. Any prepaid interest, if you choose that option.
5. A small buffer for cost movements before settlement.

Add those together and you have the gross loan to ask for. Then check the property can carry it. Lenders lend against a share of a property’s value after existing debt, so the gross figure, not the net, is what has to fit. The secured business loans page explains how equity is assessed, and the private mortgages page covers lending behind an existing bank loan.

What if the gross figure doesn’t fit? There are usually a few levers: choose monthly interest instead of prepaid so less is deducted up front, stage the spending so part can wait for a second loan later, offer an additional property, or trim the working amount to what’s essential right now. Each one changes the gap between gross and net in a different way.

What should the paperwork show you?

You’re entitled to see the numbers clearly before you sign. business.gov.au’s guide to applying for a business loan suggests reading each loan’s terms carefully and comparing “upfront and ongoing charges” across lenders. For a private loan, that comes down to two documents:

• The offer or loan contract, which sets out the gross loan, the fees, the interest arrangement and the term.
• A settlement statement or disbursement schedule, which lists every payment to be made from the loan and the net amount coming to you.

ASIC’s guidance on unfair contract terms for small businesses is a useful reminder of which figures are fixed by agreement: it treats the loan principal and establishment fees as part of the “upfront price”, while fees for things that may or may not happen later, like default fees, sit outside it. Get the upfront figures right and understood before you sign, because that’s what you’re agreeing to pay.

Illustrative example: asking for the right number

Illustrative example. A joinery business needs $220k: $160k to clear overdue BAS and $60k for a new CNC router. The owner’s first instinct is to ask a private lender for $220k.

Working backwards, the numbers look different. The $160k tax debt is paid directly to the ATO at settlement. The lender’s establishment fee and legal and registration costs come out next. The owner chooses six months of prepaid interest so the business has breathing room while the new machine lifts output, and that is deducted too. Add a modest buffer, and the gross loan needed is closer to $250k. The owner’s home has room for it as a second mortgage, so the loan is written at the correct figure. Settlement clears the ATO, $60k lands for the router, and there are no surprises.

Are the costs tax deductible?

Usually in some form, but often not all at once. The ATO’s guidance on borrowing expenses for rental property loans shows the general idea: costs such as establishment fees, title search fees and the costs of preparing mortgage documents are claimed over five years or the loan term, whichever is shorter, unless they total $100 or less. Business loans have their own detail, so ask your accountant how the costs, and any prepaid interest, should be treated for your business.

Know your net figure? Let’s see if you qualify

Once you know the cash you need to land, the rest is about matching it to the right lender and the right structure. That’s what we do every day for owners using property to borrow from $20k to $5m.

The enquiry takes about 60 seconds and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so your phone won’t ring hot. A real person looks at the amount you need to land, the debts to clear and the property behind it, then calls to talk through the gross and net figures with you. Please be accurate about what you owe and what the money’s for; that’s how we get the number right first time.

Work out your real loan amount with us →