Most business owners focus on the interest rate when comparing finance options, but the fees and charges attached to a loan can add thousands to the total cost.
A transparent view of all costs upfront allows you to compare different lenders on a level playing field and budget accurately for both the initial outlay and ongoing expenses. Some fees are unavoidable, others are negotiable, and a few can be structured in ways that suit your cash flow.
Application and establishment fees on business lending
Lenders charge an upfront establishment fee to process and assess your application. This fee typically ranges from $500 to $2,500 depending on the loan amount and lender, though some lenders waive it entirely to remain competitive.
Consider a business owner in Newtown arranging $200,000 in working capital finance through a major bank. The lender quotes an establishment fee of $1,200, payable at settlement. A second lender offers the same rate but with no establishment fee. Over a three-year term, that $1,200 difference represents a tangible saving before the loan even begins.
Some lenders capitalise the establishment fee into the loan balance, which means you don't pay it upfront but you'll pay interest on it over the life of the loan. If cash flow is tight at settlement, this can help, but the total cost will be higher.
Ongoing account-keeping and service fees
Many business loans include a monthly or annual account-keeping fee. This is usually between $10 and $30 per month, or $100 to $400 annually, depending on the lender and loan structure.
These fees are often overlooked when comparing offers, but they compound over time. A $20 monthly fee adds $720 over a three-year term. If you're comparing two loans with similar rates, the one with lower or no ongoing fees may deliver better value.
Some lenders bundle account-keeping fees into the interest rate rather than charging them separately. This can make comparison harder, so it's worth asking for a breakdown of all costs in dollar terms, not just the advertised rate.
Valuation and legal fees for secured lending
If you're taking out a secured business loan using property or equipment as collateral, the lender will require a valuation. Valuation fees typically range from $300 for equipment to $2,000 or more for commercial property, depending on the asset type and location.
Legal fees are also common on secured loans, particularly when registering a mortgage over property. Expect to pay between $800 and $2,500 for legal costs, depending on the complexity of the security and whether the lender uses an external solicitor or an in-house team.
In our experience, these costs are usually payable by the borrower at settlement and are separate from the loan amount. Some brokers can negotiate for the lender to cover or reduce these fees, particularly on larger facilities or when the client has a strong financial position.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Artisan Finance today.
Early repayment and break fees on fixed-rate facilities
Fixed-rate business loans provide certainty, but they come with restrictions. If you repay the loan early or make extra repayments above a set threshold, the lender may charge a break fee to recover the cost of the fixed rate they locked in for you.
Break fees are calculated based on the difference between the rate you're paying and the current market rate, as well as the remaining term. In a falling rate environment, break fees can be substantial. In a rising rate environment, they may be minimal or even zero.
Variable-rate facilities generally allow unlimited extra repayments without penalty, which makes them more suitable if you expect uneven cash flow or plan to pay down the loan faster than the minimum term.
Redraw and access fees on flexible loan structures
Some business loans include a redraw facility, which allows you to access any extra repayments you've made above the minimum. This can be useful for managing working capital, but lenders often charge a fee each time you redraw.
Redraw fees range from $10 to $50 per transaction. If you're planning to use the redraw facility regularly, these fees add up. A business line of credit or business overdraft may be a more suitable structure if you need frequent access to funds, as these products are designed for ongoing drawdowns without per-transaction fees.
Some lenders also charge a fee to increase your loan limit or restructure your facility. These fees are usually between $300 and $1,000, depending on the lender and the complexity of the change.
Discharge and exit fees when refinancing or paying out the loan
When you repay a business loan in full or refinance to another lender, the original lender will charge a discharge fee to release any security and close the account. Discharge fees typically range from $150 to $500.
If your loan is secured by a mortgage over property, there will also be costs to remove the mortgage from the title. These are usually between $200 and $400, depending on the state and whether you use a solicitor or conveyancer.
Some lenders also charge an early termination fee if you exit the loan before the agreed term, even on variable-rate facilities. This is less common on standard business loans but appears more often on invoice financing and equipment finance products.
Line fees on business overdrafts and revolving credit
A business overdraft or revolving line of credit typically includes a line fee, which is an annual charge for maintaining access to the facility. This fee is calculated as a percentage of the approved limit, usually between 0.5% and 2% per annum.
For a $100,000 overdraft with a 1% line fee, you'll pay $1,000 per year regardless of how much you draw down. This fee is in addition to the interest charged on any funds you actually use.
Line fees are worth paying attention to if you don't plan to use the full facility regularly. A term loan with no line fee may be more cost-effective if you only need the funds once, while a revolving facility makes sense if you need ongoing access to working capital.
Broker fees and commission structures
Most brokers are paid by the lender through an upfront commission and a trailing commission over the life of the loan. This means there's no direct fee to you as the borrower, though the cost is built into the lender's pricing.
Some brokers charge a separate fee for complex or specialist commercial lending transactions, particularly if the deal requires significant structuring or documentation work. If a broker does charge a fee, it should be disclosed upfront in the credit proposal.
Using a broker can actually reduce your overall costs, as brokers often have access to lender discounts or fee waivers that aren't available to direct applicants. We regularly see clients save more in reduced fees and better rates than any broker fee would cost.
Comparing total cost across multiple lenders
When you're assessing business finance options, the comparison rate is a useful starting point. The comparison rate includes the interest rate plus most standard fees, expressed as a single percentage. It's designed to make it easier to compare loans on a like-for-like basis.
The comparison rate doesn't include all fees, though. Valuation fees, legal costs, and early exit fees are typically excluded, so you still need to ask for a full breakdown.
In a scenario where one lender offers a slightly lower rate but higher establishment and ongoing fees, and another offers a higher rate with no fees, the second option may be cheaper over the term. The only way to know is to calculate the total cost in dollar terms, including all fees and interest, over the period you expect to hold the loan.
Call one of our team or book an appointment at a time that works for you. We'll walk you through the fee structures from multiple lenders and show you the total cost in real numbers, so you can make a decision based on what the loan actually costs, not just what the headline rate suggests.
Frequently Asked Questions
What is an establishment fee on a business loan?
An establishment fee is an upfront charge from the lender to process and assess your application. It typically ranges from $500 to $2,500 depending on the loan amount and lender, though some lenders waive it entirely.
Do business loans have ongoing monthly fees?
Many business loans include a monthly or annual account-keeping fee, usually between $10 and $30 per month. These fees can add hundreds of dollars over the loan term, so they should be factored into your total cost comparison.
What are break fees on a fixed-rate business loan?
Break fees apply if you repay a fixed-rate loan early or make extra repayments above a set threshold. The fee is calculated based on the difference between your fixed rate and the current market rate, and can be substantial in a falling rate environment.
What is a line fee on a business overdraft?
A line fee is an annual charge for maintaining access to a business overdraft or revolving credit facility. It's calculated as a percentage of the approved limit, typically between 0.5% and 2% per annum, and is payable regardless of how much you draw down.
What fees apply when you pay out a business loan?
When you repay a business loan in full, you'll typically pay a discharge fee of $150 to $500. If the loan is secured by property, there are also costs to remove the mortgage from the title, usually between $200 and $400.
