Understanding facility fees and charges

Arrangement and commitment fees

The arrangement fee covers the lender's cost of underwriting and setting up the facility and is typically charged as a percentage of the amount borrowed, often in the range of one to two per cent for standard commercial lending, higher for more complex or higher risk structures. It is usually deducted from the funds advanced rather than paid separately.

A commitment fee is different: it is charged on the undrawn portion of a facility that has been agreed but not yet used, compensating the lender for holding capital available. This matters most for revolving credit lines and development finance drawn in stages, where a large undrawn balance can otherwise sit unused for months.

Valuation, legal and due diligence costs

Secured lending against property or significant assets almost always requires an independent valuation, paid for by the borrower regardless of whether the loan ultimately proceeds. Legal fees cover the lender's solicitor drafting and registering the security, and in many cases the borrower is required to cover both sides' legal costs.

For larger or cross border transactions, due diligence fees can also cover accountant's reports, know your customer checks on group structures, and sometimes a site visit. These costs should be estimated and disclosed early, since they can be substantial relative to smaller facility sizes.

Non-utilisation and renewal fees

Invoice finance and revolving facilities sometimes carry a minimum fee or a non-utilisation charge if the facility is used below an agreed threshold, protecting the lender's minimum return on the arrangement. This is worth checking closely against realistic usage before signing, since a facility that looks cheap on the headline discount rate can carry a meaningful minimum cost regardless of drawdown.

Annual renewal fees are common on ongoing facilities such as overdrafts and invoice finance, charged each year the facility continues, separate from the arrangement fee paid at the outset.

Exit and early repayment fees

An exit fee is charged when the facility ends, whether at term or early, and is common on bridging and some asset based lending. Early repayment charges specifically penalise repaying before the agreed term and are more common on fixed rate term loans and some leasing structures than on flexible working capital facilities.

These fees are almost always negotiable at the outset, particularly for borrowers with a strong credit profile or a competing offer, but are rarely negotiable once the facility has been drawn.

Questions worth asking every provider

Ask for a single document listing every fee, when it is charged, and whether it is a fixed amount or a percentage. Ask specifically what happens on early repayment and on renewal. A provider unwilling to set this out clearly in writing before completion is a signal worth taking seriously.