Synthetic loading is a technique that forces the machine under test to operate at rated speed, torque, and flux without the need for the test machine to be connected to an external load. The technique has been successfully applied to permanent magnet machines but it requires an inverter voltampere (VA) rating that is 1.51 pu of the rated value due to the need for instantaneous phase currents and voltages that are higher than the rated value. In order to reduce the VA rating, it is possible to inject direct axis current. This has important consequences. It reduces the ac perturbation current thereby reducing the peak instantaneous phase current. Also, by reducing the ac perturbation current, the rotor speed variation is reduced, thereby reducing the instantaneous phase voltage requirement. Both these effects reduce the VA rating of the inverter. However, this paper demonstrates through simulation and experiment that such a scheme increases the iron losses in the machine. This is important as it alters the distribution of losses which is not a desired consequence. The effect of direct axis current on the iron loss and the machine efficiency during synthetic loading is assessed and evaluated as is the effect on the minimum dc link voltage and the inverter VA requirements used to conduct the synthetic loading technique. Simulation and experimental results are used to demonstrate the effects and validate the conclusions that while direct axis current injection reduces the inverter VA rating, it reduces the accuracy of the synthetic loading technique.