Total cost, not headline rate
An arrangement fee, a valuation fee, legal costs, and a monitoring or renewal fee can together add several percentage points to the effective cost of a facility that looked cheapest on the headline rate. Asking each provider for an all in cost over the expected life of the facility is the only reliable way to compare like with like.
Some lenders also charge on the full facility limit rather than the amount drawn, which matters considerably for a revolving facility that is rarely used to its limit. This single difference can flip which of two offers is actually cheaper in practice.
Security and personal exposure
Two offers at similar pricing can carry very different security packages: one secured only on the specific asset being funded, another taking a general charge over the whole business and a personal guarantee from every director. The cheaper looking rate is not necessarily the better deal if it comes with materially more exposure.
It is worth asking explicitly what happens to the security and the guarantee once the facility is repaid or refinanced, since some charges are not released automatically and require an administrative step to remove.
Covenants and reporting requirements
Facilities with financial covenants, such as a minimum interest cover ratio or a maximum leverage level, can trigger default even when scheduled payments are being met, if the underlying ratio is breached. Understanding exactly what is measured, how often, and what cure period exists before a breach becomes a formal default is essential before signing.
Reporting burden also varies significantly. Some lenders want quarterly management accounts and covenant certificates, others want nothing beyond annual accounts. For a smaller finance team, the lighter reporting requirement has a real operational cost saving even if the pricing is marginally higher.
Flexibility to repay early or increase the facility
Early repayment charges vary widely between providers and structures, from none at all to a fee equivalent to several months of interest. If there is any chance the business will refinance, sell, or grow out of the facility before term, this term deserves as much scrutiny as the headline rate.
Similarly, ask how easily the facility can be increased if the business grows faster than expected. Some lenders will accommodate this with a simple variation, others require a full new application and fresh fees.
Speed and certainty of delivery
An offer that completes reliably in three weeks is often worth more than one that is marginally cheaper but has a track record of slipping deadlines, particularly where the funding is tied to a time sensitive purchase or contract. Speaking to a broker or reference who has used the lender before can surface this kind of practical reliability that does not appear in the term sheet.
Frequently asked questions
Should I always take the lowest interest rate on offer?
Not automatically. Fees, security requirements, covenants and early repayment terms can make a higher headline rate the cheaper and more flexible option overall once the full picture is compared.
What is an arrangement fee and is it negotiable?
It is an upfront charge for setting up the facility, usually a percentage of the amount borrowed. It is often negotiable, particularly for larger facilities or where you have a competing offer to reference.
How do I compare facilities with different fee structures fairly?
Ask each provider to confirm the total cost over the expected life of the facility, including all fees, and compare that single figure alongside the security and covenant terms rather than the rate in isolation.
Last reviewed: 2026-08-27