When to Expect Fees on Your Business Loan

Business loan fees add up quickly if you don't know where to look.

Most businesses focus on the interest rate when comparing finance options, but the fees attached to a business loan can shift the actual cost by thousands of dollars. Application fees, ongoing account charges, exit penalties, and drawdown costs all play a role in what you'll pay over the life of the loan. Some lenders charge upfront, others build costs into the rate, and a few charge on both ends. Knowing which fees apply to your situation means you can compare options properly and avoid surprises during settlement or when you need to adjust your borrowing.

Upfront Fees You'll Encounter When Applying

Most business loans include an application or establishment fee charged when the loan is approved. This fee covers the lender's cost of assessing your application, preparing documentation, and setting up the account. Depending on the lender and loan amount, establishment fees typically range from a few hundred dollars to several thousand. Some lenders waive this fee as part of a promotion or when you're borrowing a larger amount, while others apply it regardless of loan size.

Consider a business owner arranging a secured loan to purchase equipment. The lender approves the loan and charges an establishment fee of $1,200. That amount is either paid upfront or added to the loan balance. If it's capitalised into the loan, the business pays interest on that fee over the full loan term, which increases the total cost. In our experience, businesses with strong financials and an existing banking relationship sometimes negotiate a reduced establishment fee, but this isn't guaranteed.

Some lenders also charge a valuation fee if you're using property or equipment as collateral. This covers the cost of an independent valuation to confirm the asset's value. The fee is separate from the establishment charge and usually sits between $200 and $800, depending on the asset type and location.

Ongoing Account Fees and Service Charges

Many business loans include a monthly or annual account-keeping fee. This fee is separate from the interest rate and covers the administrative cost of managing your loan account. Monthly fees typically range from $10 to $50, depending on the loan structure and whether it includes features like a redraw facility or multiple drawdown options.

A business line of credit often carries a higher monthly service fee than a standard term loan because it offers more flexibility. You can draw funds as needed, repay, and redraw again without reapplying. That flexibility comes with an ongoing cost. Some lenders bundle the service fee into the interest rate, while others charge it separately. If you're comparing a term loan at a slightly lower rate against a line of credit with a higher rate and a monthly fee, you'll need to calculate the total cost over the period you expect to hold the loan.

For businesses using their loan for working capital or to cover unexpected expenses, the ability to redraw can justify the additional monthly charge. But if you're borrowing a fixed amount with no intention of accessing extra funds, a loan without ongoing fees may be more suitable.

Variable vs Fixed Rate Fees and Break Costs

Fixed interest rate business loans usually carry higher exit penalties than variable rate loans. If you repay the loan early or refinance before the fixed period ends, the lender may charge a break cost to compensate for the interest they expected to receive. Break costs are calculated based on the difference between your fixed rate and the lender's current wholesale funding rate. The larger the gap and the longer the remaining fixed period, the higher the cost.

Variable interest rate loans generally allow extra repayments and early exit without penalty, though some lenders still apply an exit fee. This fee is usually a flat amount, often between $300 and $800, and applies regardless of how much you repay or when you close the account. If your business is growing and you expect to refinance or pay down debt ahead of schedule, a variable loan with minimal exit fees gives you more flexibility.

If you've locked in a fixed rate and conditions change, the break cost can run into thousands of dollars. We regularly see businesses caught off guard by this when they want to consolidate debt or take advantage of a lower rate elsewhere. Always ask your lender or broker to provide an estimate of the break cost before you commit to a fixed term.

Drawdown and Redraw Fees on Flexible Loan Structures

Loans with progressive drawdown or revolving line of credit features often charge a fee each time you draw funds. This is common with construction loans, equipment financing arrangements, or working capital facilities where you don't need the full loan amount upfront. Drawdown fees typically range from $100 to $300 per transaction, depending on the lender and the loan structure.

A business using a progressive drawdown loan to finance a fitout might draw funds in stages as the work progresses. If the fitout requires four drawdowns and the lender charges $200 per draw, that adds $800 to the cost of the loan. Some lenders cap the number of drawdowns included in the loan or offer fee-free drawdowns for the first few transactions, then charge for additional requests.

Redraw fees apply when you access funds you've already repaid ahead of schedule. Not all lenders charge for redraw, but when they do, the fee is usually between $50 and $150 per transaction. If your business frequently needs access to surplus cash, a loan structure that includes unlimited fee-free redraws or a line of credit may be more cost-effective than a term loan with redraw fees.

Exit Fees, Discharge Fees, and Early Repayment Penalties

When you repay your business loan in full, whether at the end of the term or earlier, most lenders charge a discharge or exit fee. This covers the administrative cost of closing the account and releasing any security held over your assets. Discharge fees are typically between $300 and $800, depending on the lender and whether the loan is secured or unsecured.

If your loan is secured against property, the lender will also charge for the preparation and lodgement of a discharge of mortgage. This fee is usually separate from the exit fee and can add another $300 to $500 to the cost of closing the loan. Some lenders include this in their exit fee, while others itemise it separately.

Early repayment penalties apply when you pay off more than the lender allows during a fixed term. Some lenders cap additional repayments at a certain percentage of the loan balance each year, such as 10% or 20%, and charge a penalty if you exceed that amount. Variable rate loans rarely include early repayment penalties, but it's worth confirming before you commit to a loan structure.

How Fee Structures Differ Between Secured and Unsecured Business Loans

Secured business loans usually have lower interest rates than unsecured loans, but they often carry higher upfront and exit fees. The lender's cost of assessing and registering security over an asset, such as property or equipment, is passed on to the borrower through valuation fees, legal fees, and discharge costs. If you're borrowing a large amount and plan to hold the loan for several years, the lower rate on a secured loan can outweigh the higher fees.

Unsecured business finance often has a simpler fee structure. There's no valuation fee, no mortgage registration, and discharge costs are minimal. However, the interest rate is typically higher to offset the lender's increased risk. For businesses that need funds quickly or don't have assets to use as collateral, an unsecured loan can be a faster and more straightforward option, even if the rate is higher.

Some lenders market their unsecured loans as having no ongoing fees or no exit fees, but the interest rate often reflects that. Always compare the total cost over the period you expect to hold the loan, not just the rate or the absence of specific fees.

Comparing Total Cost Across Lenders and Loan Structures

The only way to compare business loans properly is to calculate the total cost, including all fees, over the period you expect to hold the loan. A loan with a lower interest rate but high upfront and ongoing fees may cost more than a loan with a slightly higher rate and minimal fees, depending on your loan amount and repayment schedule.

Most lenders provide a comparison rate for consumer loans, but business loans are exempt from comparison rate disclosure. That means you'll need to request a detailed fee schedule and calculate the total cost yourself or ask your broker to do it for you. Include establishment fees, monthly account fees, drawdown fees if applicable, and exit or discharge fees. If you're comparing a fixed rate loan, factor in potential break costs if there's any chance you'll refinance or repay early.

For businesses managing cash flow or planning for business expansion, the flexibility offered by certain loan structures may justify higher fees. But if you're borrowing a fixed amount for a specific purpose, such as equipment financing or a business acquisition, a simpler loan structure with lower fees and fewer features may reduce your total cost.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structures on the loans that suit your situation and help you compare options based on what you'll actually pay, not just the advertised rate.

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