Top tips to understand business loan fees and charges

What fees apply to business loans?

Most business loans come with an establishment fee, ongoing monthly or annual account-keeping fees, and potential exit or discharge fees if you repay early or close the loan. These charges vary by lender and loan type, but knowing what to expect helps you compare options without focusing only on the interest rate.

We regularly see Maroubra business owners surprised by the total cost of borrowing when they focus solely on the advertised rate. A loan with a slightly higher interest rate but lower upfront and ongoing fees can work out cheaper over the term, particularly if you're borrowing a smaller amount or planning to repay quickly.

Consider a café owner in Maroubra who needs $80,000 to purchase new equipment and fit out a second location on Anzac Parade. One lender offers a rate 0.3% lower than another, but charges a $2,500 establishment fee and $50 per month in account-keeping fees. The alternative lender charges $800 to establish and $20 per month ongoing. Over a three-year term, the lower-rate loan costs roughly $1,800 more in fees alone, which offsets much of the rate advantage. The owner went with the second option because the total cost over the term was lower and the loan included free additional repayments without penalty.

Establishment and application fees

Establishment fees cover the lender's cost to assess, approve, and set up your loan. They typically range from $500 to $3,000 depending on the loan amount and complexity. Some lenders also charge a separate application fee, which is non-refundable even if your loan is declined.

You can sometimes negotiate establishment fees, particularly if you're borrowing a larger amount or have a strong business credit score and financial position. Some lenders waive or reduce these fees as part of a promotion or to win your business. It's worth asking, especially if you're comparing multiple offers.

For commercial loans used to purchase property or fund a business acquisition, establishment fees can be higher because the lender's due diligence is more involved. You might also pay for a commercial valuation, which sits outside the loan fees but adds to your upfront cost. Budget between $1,000 and $3,000 for a commercial valuation depending on the property type and location.

Ongoing account-keeping and service fees

Most business loans charge a monthly or annual fee to maintain the account. This can range from $10 to $100 per month depending on the lender and whether the loan includes features like a redraw facility or offset account. These fees add up over time, so factor them into your comparison.

Some lenders bundle account-keeping fees into the interest rate, which means the rate looks higher but there are fewer line items on your statement. Others charge a lower rate but add multiple ongoing fees. Neither approach is inherently worse, but you need to calculate the total cost to know which structure suits your situation.

If you're using a business line of credit or business overdraft rather than a term loan, expect higher monthly fees because these products offer more flexibility. A revolving line of credit lets you draw down, repay, and redraw as needed, which is useful for managing cash flow but typically costs more in ongoing charges than a standard term loan. We regularly see this structure work well for Maroubra trades and service businesses that need working capital to cover unexpected expenses or smooth out seasonal revenue gaps.

Early repayment and exit fees

If you repay your loan early or refinance to another lender, you may be charged an exit or discharge fee. This is common on both secured and unsecured business finance and can range from $300 to $1,500. Fixed interest rate loans often carry additional break costs if you exit before the fixed term ends, which can run into thousands of dollars depending on how much rates have moved since you locked in.

Exit fees are usually disclosed in the loan contract, but they're easy to overlook when you're focused on getting the funds through the door. If you think there's a chance you'll refinance or sell the business within the loan term, check the exit fee upfront and factor it into your decision.

Some lenders allow extra repayments on variable interest rate loans without penalty, which gives you flexibility to pay down the loan faster if your cash flow improves. Others cap the extra repayment amount or charge a fee if you exceed a certain percentage of the loan balance in any given year. If you expect to have surplus cash flow and want to reduce interest costs, look for a loan with flexible repayment options and no penalty for paying ahead.

Fees on equipment finance and asset finance

When you use equipment finance or asset finance to purchase equipment, the lender may charge a documentation fee on top of the establishment fee. This covers the cost of registering security over the asset, which protects the lender's interest if you default. Documentation fees are typically $300 to $800.

You might also encounter a risk fee if the lender views the equipment as difficult to recover or resell. This is more common with specialised or custom equipment that has limited resale value. The fee is either a flat amount or calculated as a percentage of the loan amount and added to your total borrowing cost.

In a scenario where a Maroubra gym owner borrows $120,000 to purchase commercial-grade fitness equipment, the lender charges a $600 documentation fee to register security over the equipment and a $1,200 risk fee because some of the items are custom-built for the space. The owner negotiated a lower establishment fee in exchange for accepting these charges, which reduced the upfront cash needed at settlement.

Valuation and legal fees

If you're taking out a secured business loan using property as collateral, the lender will require a valuation before approving the loan. You pay for this valuation, and the cost depends on the property type and location. Residential properties used as security typically cost $300 to $600 to value, while commercial properties can cost $1,500 or more.

You may also need to pay legal fees to prepare loan documents and register the mortgage or security interest. Some lenders include these costs in the establishment fee, while others charge them separately. Budget at least $800 to $1,500 for legal fees on a secured loan, more if the transaction involves multiple properties or a complex loan structure.

For Maroubra business owners using their home as security to fund business expansion, it's worth understanding that these costs sit outside the loan itself but add to the total amount you need upfront. Some lenders let you capitalise these fees into the loan amount, which means you don't pay them out of pocket but you do pay interest on them over the life of the loan.

How to compare total borrowing costs

The comparison rate is a useful starting point because it includes the interest rate plus most standard fees, expressed as a single annual percentage. It doesn't include every fee, particularly optional features or early exit costs, but it gives you a clearer picture than the interest rate alone.

When comparing business loans, ask each lender for a breakdown of all fees and calculate the total cost over the term you expect to hold the loan. Include establishment fees, ongoing monthly fees, and any exit fees if you plan to refinance or repay early. This approach shows you which loan costs less overall, even if the advertised rate isn't the lowest.

We regularly see business owners in Maroubra choose a loan based on the rate alone, only to realise later that the fees make it more expensive than an alternative with a slightly higher rate. Taking the time to calculate total cost upfront saves you money and frustration down the track.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structures on different loan options and show you the total cost over the term that suits your business.

Frequently Asked Questions