Business loan fees in Australia: establishment, line fees, early repayment and break costs
Every fee an Australian small business loan can carry, what it should cost you in dollars, how break costs work and how to turn fees into a true annual cost.
Fees can add as much to a small business loan as a few points of interest, and on short loans they often add more. The usual list is an establishment or origination fee, valuation and legal costs for secured loans, ongoing account or line fees, and the costs of leaving early: early repayment fees and, on fixed rates, break costs. Because business loans are generally outside the National Credit Code, there is no standard comparison rate that bundles these in. Ask for every fee in dollars and add them to the interest yourself.
This guide is part of the small business loan rates overview. Figures are illustrative.
Fees at the start
| Fee | What it pays for | How it is charged | Questions to ask |
|---|---|---|---|
| Establishment / application fee | Lender's assessment and set-up | Flat dollar amount or a percentage of the loan | Is it deducted from the advance or paid separately? |
| Origination fee | Common with online lenders | Percentage of the approved amount, often deducted | What cash will actually reach my account? |
| Valuation fee | Independent valuation of property security | Flat, depends on property type | Can I see the valuation? Will it be reused at review? |
| Legal / documentation fee | Lender's solicitors preparing mortgage, GSA, guarantees | Flat or quoted | Do I also need my own lawyer? (Often yes for guarantors.) |
| PPSR and title registration | Registering security | Government fees passed on | How many registrations will there be? |
| Broker fee | Broker's work, if charged to you | Flat or percentage | Is the broker also paid commission by the lender? |
Worked example: a percentage fee deducted upfront
An online lender approves $60,000 over 12 months with a 4% origination fee and $400 of other fees deducted at settlement (illustrative).
- Percentage fee: $60,000 × 4% = $2,400
- Total deducted: $2,400 + $400 = $2,800
- Cash received: $57,200
You repay $60,000 plus interest, on $57,200 of usable money. The fee is 4.9% of the cash received, and because the balance falls through the year as you repay, it raises the effective annual cost of a 12-month loan by roughly twice that. Check the arithmetic for your own offer in the net proceeds calculator.
Ongoing fees
- Monthly account keeping fees: $15 a month is $180 a year and $900 over five years.
- Line fees or limit fees on overdrafts and lines of credit, charged on the whole limit. See overdraft vs line of credit.
- Undrawn fees on facilities you have not used.
- Annual review fees, sometimes with a fresh valuation.
- Dishonour or late payment fees, which can be charged each time a repayment fails.
- Variation fees for changing the loan, releasing security or adding a borrower.
Leaving early: early repayment fees and break costs
These two are often confused.
An early repayment fee is a charge in the contract for paying the loan out before the end. It might be a flat amount, a percentage of the balance, or a sliding scale that falls each year. Some short-term lenders require the full amount of interest to the end of the term to be paid regardless; read that clause twice.
A break cost applies to fixed-rate loans. If you leave during the fixed period and wholesale rates have fallen since you fixed, the lender loses income on the funding it arranged. The break cost compensates it. If rates have risen, there may be little or no break cost (and some contracts do not pay you a benefit).
Rough illustration: $200,000 fixed with three years left. Wholesale fixed rates for a three-year term have fallen by 1 percentage point since you fixed. A rough upper estimate of the lender's loss is $200,000 × 1% × 3 = $6,000. Because the balance falls as you repay and the lender discounts future amounts, the real figure for an amortising loan would usually be lower, but only the lender can calculate it. Always ask for a written break cost quote before deciding to refinance, and use it in the refinance calculator.
GST on fees
Interest and many lender fees are financial supplies that are generally input taxed, meaning no GST is charged and none can be claimed. Third-party services such as legal work and valuations usually include GST, which a GST-registered business may be able to claim back. Check each tax invoice and confirm with your tax agent.
Turning fees into one number
Add up:
- Total interest over the term (from the repayment calculator)
- All upfront fees, whether deducted or paid
- Ongoing fees × number of months or years
- Any known exit costs if you expect to repay early
Divide by the term and the cash actually received to get a rough annual cost per dollar used. The three-offer worked comparison shows this with full numbers.
Fees that can be negotiated
- Establishment fees, especially for strong applicants or existing customers
- Valuation fees, if a recent valuation exists
- Monthly fees on larger facilities
- Early repayment terms, before you sign rather than after
Unfair contract terms laws can apply to standard-form small business loan contracts; a fee term that causes a significant imbalance and is not reasonably necessary to protect the lender may be challengeable. See the rules guide.
Frequently asked questions
Are business loan fees tax deductible?
Borrowing expenses for a business loan are often deductible, sometimes spread over the loan term rather than claimed at once. Confirm the treatment with the ATO or your tax agent.
Can a lender add new fees after I sign?
Only if the contract allows it, usually with notice. Unilateral variation clauses in standard-form small business contracts can be scrutinised under unfair contract terms laws.
Is an early repayment fee the same as a break cost?
No. An early repayment fee is set in the contract; a break cost on a fixed rate depends on how wholesale rates have moved since you fixed.
Why is the fee higher on a smaller loan in percentage terms?
Assessment and set-up work costs roughly the same regardless of loan size, so on a small loan it is a bigger share.
Sources
- ASIC — unfair contract terms and conduct rules for financial products
- ATO — deductibility of borrowing expenses and GST on financial supplies
- Australian Banking Association — Banking Code of Practice — fee disclosure commitments for subscribing banks
- business.gov.au — choosing business finance
