UK Business Loan Fees: Arrangement, Broker, ERC, Default
Headline APR is one number. Total cost of borrowing includes arrangement fees, broker fees, early-repayment penalties, default interest, and miscellaneous administrative charges. This guide breaks down each fee type, typical UK ranges, and how to read the small print before signing.
Director, BestBusinessLoans
Oliver leads BestBusinessLoans's editorial reviews and methodology. With a background in UK commercial finance, he oversees lender research, rate verification and review independence.
Last reviewed: 11 May 2026
Arrangement fees
One-off fee charged at drawdown, typically 1-5% of facility size for unsecured term loans, 2-4% for asset-backed loans, 0.5-2% for invoice finance facilities, and 3-7% for specialist post-decline loans. Usually deducted from the gross drawdown (you borrow £100k, receive £97k after a 3% arrangement fee, repay £100k plus interest). Some lenders amortise the arrangement fee across the loan term rather than taking it at drawdown, same total cost, different cashflow timing.
Broker fees
UK SMB brokers typically charge 1-5% of facility size, payable at drawdown. Broker fees can be paid by the lender (commission from the lender, transparent to the borrower) or by the borrower (charged separately). Both models exist in the UK market; ask which applies before engaging the broker. Specialist post-decline brokers often charge 5-7% reflecting the harder placement. For clean fintech-friendly files, applying direct often avoids the broker fee entirely.
Early repayment fees
Most UK SMB term loans allow early repayment without penalty after an initial period (typically 6-12 months). Some lenders charge an early-repayment fee equivalent to 3-6 months of forecast interest if repaid before maturity. Flexi-loans and revolving credit facilities usually have no early-repayment penalty by structure. Read the contract before signing, the early-repayment treatment materially affects total cost on loans you might want to refinance.
Default interest and arrears charges
Default interest applies when a borrower misses a scheduled payment or breaches a covenant. Typical UK default rate is 2-5 percentage points above the contractual rate, applied for the duration of the default. Arrears charges (one-off fees per missed payment, typically £25-50 each) accumulate alongside the default interest. Persistent default triggers acceleration clauses where the lender can call the full outstanding balance for immediate repayment. These mechanics rarely surface for clean files but matter when reading the contract.
Miscellaneous fees
Five other common UK SMB loan fees. (1) Personal guarantee fee or PG support fee (some lenders charge £50-200 to process the PG documentation). (2) Documentation fee (£100-500 for complex secured facilities). (3) Annual review fee on revolving facilities (£250-1000 per year). (4) Modification fee if terms are amended mid-loan (£250-1500). (5) Discharge fee at facility close (£100-500 for asset finance and secured facilities). Individually small but cumulatively material on facilities running multiple years.
Effective APR vs headline APR
Effective APR rolls all fees and the prepayment economics into a single annual rate. UK consumer credit regulation requires effective APR disclosure on consumer loans but UK SMB lending is not regulated the same way, many SMB lenders publish only the headline rate. For accurate comparison, ask each lender to provide effective APR including all fees on the specific facility you're considering. The difference between headline and effective APR can be 2-5 percentage points on the same product.
FAQ
How do I get the total cost of borrowing on a quote?
Ask the lender for the "total cost of credit" or "total repayable" figure on the specific facility. This includes principal + interest + all fees over the term. Most UK SMB lenders will provide this on request even if not standard on the quote. Compare across lenders on total repayable rather than headline APR for accurate cost ranking.
Are arrangement fees negotiable?
Sometimes. Established borrowers, larger facility sizes, or competitive panel quotes can sometimes shift arrangement fees by 0.5-1 percentage point. Smaller facilities or specialist post-decline routes have less negotiation room. Always ask before signing, the answer is sometimes yes.
What's a typical broker fee?
2-3% for mainstream UK SMB finance brokers, 4-5% for specialist or complex placements, 5-7% for specialist post-decline routes. Higher fees should correlate with materially harder placements; check whether the same outcome is available via direct application before committing to a 5%+ broker fee.
Do all UK SMB lenders disclose effective APR?
No. UK SMB lending is not regulated under the Consumer Credit Act, so effective APR disclosure is not mandatory the way it is for consumer credit. Some lenders disclose it voluntarily; others publish only the headline rate plus separate fee schedule. Always ask for effective APR before signing.
What's the difference between a default fee and default interest?
Default fee is a one-off charge per breach event (typically £25-50). Default interest is an ongoing rate uplift applied to the outstanding balance for the duration of the default (typically 2-5 percentage points above the contractual rate). Both can apply simultaneously to a borrower in default.
Can I claim arrangement fees as business expense?
Generally yes. UK SMB loan arrangement fees are typically tax-deductible as business expense in the year incurred, or capitalised and amortised over the loan term depending on accounting treatment. Specific treatment depends on accounting standards and HMRC rules; confirm with your accountant.
Reviewed by Oliver Mackman, Director. Last reviewed: 2026-05-11.