Business finance fees and charges explained

Why fees matter as much as the rate

Directors comparing finance naturally focus on the interest rate — but a headline rate tells only part of the story. Fees can make a loan with an attractive rate more expensive overall than a rival with a higher rate and no extras. The honest measure is always the total cost of borrowing: every charge you will pay, added together, over the life of the facility.

Fees fall into two broad groups. Upfront fees are charged when the facility is set up or drawn. Ongoing or conditional fees apply during the loan — sometimes only if certain things happen, such as a missed payment. Knowing which is which, and which apply to you, lets you read past the marketing to what a facility genuinely costs. A transparent lender will lay all of this out clearly before you commit.

Common upfront fees

Upfront fees are payable at or near the start of the facility. The most common is an arrangement fee (sometimes called a facility fee), which covers setting up the loan. Closely related is an origination fee, charged for processing and underwriting the application. Some lenders deduct these from the amount advanced rather than charging them separately, so it pays to ask whether the figure you receive is before or after fees.

Fee	What it covers	Watch for
Arrangement / facility fee	Setting up the facility	Whether it's added to the loan or deducted from it
Origination fee	Processing and underwriting	Sometimes a % of the amount borrowed
Drawdown fee	Releasing funds to you	Per-drawdown charges on flexible facilities
Valuation / legal fee	Securing the loan (if secured)	Less common on unsecured short-term finance

On a straightforward unsecured facility, valuation and legal fees usually don't arise.

Ongoing and conditional charges

Not every fee is paid at the start. Some apply during the facility, and some only if specific events occur. The key conditional charges to understand are these.

• Late payment fees — applied when a scheduled repayment is missed, and often accompanied by additional interest on the overdue amount. Avoidable with disciplined cash-flow planning.
• Default charges — heavier costs that arise if an account falls into default, typically after repeated missed payments.
• Early repayment charges — on some loans, a fee for settling before the end of the term. Others let you repay early and save the remaining interest, which is far more flexible.
• Servicing or admin fees — occasional charges for specific actions, such as a payment-method change or a duplicate statement.

The conditional fees matter most when things don't go to plan, so understanding them upfront helps you avoid the avoidable ones entirely.

Spotting the true cost behind a low rate

A low advertised rate can mask a high overall cost once fees are added. To see through it, ask every lender for the same four numbers and compare them side by side: the total amount repayable, the interest charged, the sum of all fees, and the APR (which is designed to fold representative fees into a single comparable rate).

Pay particular attention to where fees are hidden in plain sight. A fee deducted from the advance means you receive less than you borrowed but repay the full amount — quietly raising the real cost. A per-drawdown charge on a flexible line can mount up if you draw frequently. And a tempting rate paired with a stiff early-repayment charge removes the flexibility that made short-term finance attractive in the first place. The simplest defence is one question, asked early: "What is the total amount I will repay, including every fee?"

Questions to ask before you sign

A reputable lender will answer all of these plainly, and reluctance to do so is itself a warning sign. Before committing to any facility, ask:

• What is the total amount repayable, including all fees?
• Are any fees deducted from the advance, so I receive less than the headline sum?
• Is there an early repayment charge, or can I settle early and save interest?
• What happens — and what does it cost — if I miss a payment?
• Are there per-drawdown or ongoing fees on a flexible facility?

Reading the offer carefully is the other half of the job; our guide to reading a loan offer shows exactly where these figures appear. Credicorp sets out the full cost of a facility before you commit, with no personal guarantee on the company's borrowing. When you're ready to compare a real offer, you can register here.