Business Loan Fees Explained: What You’ll Really Pay
Arrangement fees of 1–3% and early repayment penalties of up to 6 months’ interest are the biggest hidden costs. We recommend iwoca and Tide Funding Options for transparent, no-penalty borrowing.
- Tide Funding Options shows total borrowing cost — not just the headline rate.
- Compare fees and rates across multiple lenders in one soft-search application.
- No arrangement fee on Tide’s own lending product for qualifying businesses.
What Fees Do Business Loans Charge?
Business loans can carry fees at multiple points in the loan lifecycle. The most common are: arrangement fees (charged upfront), broker fees (if you use a broker), drawdown fees (per-use on revolving facilities), early repayment fees, late payment fees, and exit fees on some products.
Not all fees apply to every loan. Short-term loans from alternative lenders often carry no arrangement fee but charge higher interest. Bank loans typically have lower interest but higher arrangement and exit fees.
We compared fee structures across seven lenders and found the total cost difference between the cheapest and most expensive fee structures was significant — a £50,000 loan over two years could cost £3,000–£8,000 more depending on which fees apply.
Arrangement Fees on Business Loans
An arrangement fee is charged by the lender to set up the loan. It is typically 1–3% of the loan amount and is either deducted from the funds you receive or added to the loan balance (which means you pay interest on it).
On a £100,000 loan, a 2% arrangement fee costs £2,000. If added to the loan balance and charged at 10% APR over three years, the true cost of that fee is closer to £2,300. Always check whether the fee is deducted or capitalised.
Some lenders — including iwoca — charge no arrangement fee on standard loans. At high-street banks, arrangement fees are standard and sometimes negotiable for larger loans or existing business customers.
Early Repayment and Exit Fees on Business Loans
If you repay a fixed-term loan before the agreed end date, many lenders charge an early repayment fee. This is typically 1–6 months of interest on the remaining balance. On a £50,000 loan at 10% APR, six months of interest equals roughly £2,500.
The breakeven point matters. If you save more interest by repaying early than the penalty costs, early repayment is worth doing. If the penalty is high and the remaining interest is low, it may not be. Calculate both figures before deciding.
We found that iwoca charges no early repayment fee — you can repay in full at any time without penalty. Funding Circle also offers early repayment options. High-street banks are more variable — always check the specific terms.
How Business Loan Fees Affect Your Total Cost
The total cost of a business loan is: principal + total interest paid + arrangement fee + any exit or early repayment fees. The interest rate alone does not tell you this figure.
A loan at 8% APR with a 3% arrangement fee can cost more over two years than a loan at 10% APR with no arrangement fee and no exit costs — depending on loan size and term. Always ask lenders for the total amount repayable.
Under FCA regulation, lenders must disclose the total cost of credit, the APR, and all associated fees before you sign. Compare this figure, not just the headline rate. We recommend getting at least three total-cost quotes before committing to any business loan.
How to Compare Business Loan Fees Across Lenders
The most reliable comparison method is to ask each lender: “What is the total amount I will repay?” This includes all interest, fees, and charges. Do not compare interest rates alone — fee structures make the true cost differ substantially.
If you are using a broker, check whether a broker fee is included. Some brokers charge 1–3% of the loan amount on top of lender fees. Others are paid by the lender at no cost to you — always ask how the broker is compensated.
We compared seven lenders on total cost for a representative £50,000 loan over 24 months. The lowest total cost came from Funding Circle (6.9% APR, no arrangement fee for some products). The highest came from a short-term MCA product — more than double the interest cost.
Business Loan Fee FAQs
What is a typical arrangement fee for a business loan?
Arrangement fees typically range from 1% to 3% of the loan amount. On a £50,000 loan, that is £500 to £1,500. Some alternative lenders — including iwoca — charge no arrangement fee. High-street banks almost always charge one. Check whether it is deducted from your funds upfront or added to the loan balance.
Can I avoid early repayment fees on a business loan?
Yes, by choosing lenders that do not charge them. iwoca has no early repayment fee — you can repay in full at any time. Funding Circle also offers early repayment flexibility. If you think you may repay early, prioritise lenders with no early repayment penalty when comparing options.
Do I have to pay a broker fee when taking out a business loan?
Not always. Some brokers are paid by the lender and charge you nothing directly. Others charge 1–3% of the loan amount. Always ask how the broker is compensated before proceeding. Comparison platforms like Tide Funding Options are free to use and do not charge a broker fee.
Are business loan fees tax deductible?
In most cases, yes. Arrangement fees and interest on business loans are typically deductible against corporation tax as a business expense. However, the rules depend on how the loan is used and your business structure. Confirm with your accountant before relying on any tax treatment.
This guide was researched using primary sources including FCA guidance, lender primary websites, and HMRC documentation. The content covers business loan fees and total cost of borrowing. Verified in May 2026.
The information covers general principles applicable to UK businesses and is not financial advice. Fee structures and terms vary by lender and business circumstances. Verify current terms directly with providers before making decisions.
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