Definition
An establishment fee is a one-off charge for setting up a loan, covering the lender's assessment, documentation and administration. It may be paid upfront, deducted from the loan amount before funds are released, or added to the loan balance. On short-term loans it can be a large share of the total cost, so include it when comparing offers.
Most business loans carry an establishment fee. The question is how it is charged and how much it changes the real cost.
Three ways it is charged
- Paid upfront, separately from the loan.
- Deducted from the advance, so you receive less cash than the loan amount.
- Added to the balance, so you repay it over the term.
If the fee is deducted, you are repaying the full loan amount while receiving less. That is why our calculators compare offers on cash received.
Why it matters more on short loans
A fee spread across five years has a small effect each month. The same fee on a six-month loan has a large one. Put every fee into the true cost calculator to see the real cost per dollar.
Compare properly
Our guide to business loan fees lists the other charges to check. If you want a second view of an offer, make one enquiry.
Common questions
Is an establishment fee negotiable?
Sometimes, particularly for strong applications, larger loans or when you have a competing offer.
Is an establishment fee tax deductible?
Borrowing costs such as establishment fees may be deductible, sometimes spread over several years. Ask your accountant.
Sources and further reading
Related terms