How arrangement fees affect business loan repayments
An arrangement fee (also called a completion fee or setup fee) is charged by UK lenders to process and underwrite a commercial loan, typically between 1% and 5% of the borrowing amount. Even a small percentage fee significantly affects your overall borrowing cost, the cash you receive, and your effective annual APR.
Choose how often you repay. Monthly repayments are standard, while weekly or fortnightly repayments reduce the balance faster and lower total interest slightly. The calculator tracks the loan balance over the term and includes the arrangement fee in the total cost of credit.
Arrangement fees: deducted, added or paid separately
Lenders structure arrangement fees in three distinct ways. When deducted from the advance, the fee reduces the cash deposited into your bank account, but you amortise and pay interest on the full borrowing amount. When added to the loan, you receive the full requested cash upfront, but your balance increases by the fee amount and you pay interest on the fee over the entire term.
When paid separately, you pay the fee from your own cash reserves at completion. On a £50,000 loan at 8% over five years with a 2% fee (£1,000), deducting the fee gives you £49,000 in cash with repayments of £1,013.82 a month. Adding the fee increases your starting balance to £51,000.00 and your monthly repayment to £1,034.10, costing an extra £216.59 in interest (£11,045.77 total interest) and bringing total borrowing cost to £12,045.77.
Nominal interest rate vs effective APR with fees
The nominal interest rate is the base charge for the money borrowed, while the Annual Percentage Rate (APR) reflects the true cost by accounting for the arrangement fee and the timing of cash flows. In the UK, APR is quoted as the effective annual rate.
An arrangement fee paid upfront or deducted from the advance raises the effective APR compared with the same loan without that fee. With no fee entered, the APR reflects the selected quote type and repayment schedule. A flat-rate quote is not directly comparable to an APR quote: flat interest is charged on the whole initial balance throughout the loan rather than on the decreasing balance. Compare lender offers using their fee-inclusive APR and the same repayment assumptions.
Worked example: £50,000 over five years
Borrow £50,000 at 8% a year over five years, repaid monthly, with a 2% arrangement fee of £1,000 deducted from the loan. You receive £49,000. The repayment is £1,013.82 for 60 months, so you repay £60,829.18 in total, of which £10,829.18 is interest.
With the fee, the total cost of borrowing is £11,829.18, which is 23.66% of the amount borrowed. Because the fee reduces the cash you receive, the APR is 9.23%, higher than the 8% quoted rate. After 12 months you still owe £41,527.99, having paid £3,693.83 in interest in the first year.
Overpayments and early settlement
Overpaying reduces the outstanding balance and saves interest: adding £200 to every repayment on a five-year £50,000 loan with the 2% fee clears it in 49 months, 11 months early, and saves £2,178.60 of interest.
If your agreement allows early repayment, settling early reduces total interest charges but may incur an early repayment charge (ERC). On the five-year £50,000 loan, settling after 24 months leaves a balance of £32,352.82 plus a 2% charge of £647.06, bringing the total cost of the loan to that point to £8,331.55.
What this estimate leaves out
This estimate assumes a fixed interest rate and regular repayments. It does not assess credit approval, personal guarantee requirements, debentures, commercial valuation or legal expenses charged separately by solicitors, or VAT where applicable. Variable-rate facilities will fluctuate with the Bank of England base rate.
Review your formal European Consumer Credit Information (SECCI) or facility agreement for binding repayment figures, fee structures, and covenant conditions.
For general term loan calculations, use the main business loan calculator .
To compare lender quotes by true APR, see the business loan APR calculator .
Use the right country page
This page stays in pounds and uses UK terms: arrangement fee, APR as the effective annual rate, flat-rate quotes and early repayment charges. The country choices above the inputs open separate local pages. Choosing United States opens the US business loan calculator with origination fee, which uses origination fees and quotes APR as the nominal annualised rate. The inputs reset and amounts are not converted.
Inputs for the business loan with arrangement fee calculator
Loan amount
How much you want to borrow, before any arrangement fee is deducted.
Rate type and quoted rate
Nominal interest rate, effective APR, or flat rate as quoted by your lender.
Term
The loan duration in years or in whole months (up to 30 years).
Repayments
Monthly, fortnightly, or weekly repayment frequency.
Interest-only period at the start
Initial months where only interest is serviced, leaving principal repayment for later.
Arrangement fee
The percentage fee charged by the lender, and whether it is deducted, added, or paid separately.
Fee with each repayment
Any fixed monthly account management or administration fee.
Legal, valuation and other fees
Fixed upfront completion costs such as solicitor or surveyor fees.
Extra paid with each repayment
Regular overpayment applied directly to reducing principal.
Settle the loan after
The month in which you plan to redeem the balance in full.
Early repayment charge
Percentage penalty charged on early redemption of the balance.
CALCULATOR QUESTIONS
UK business loan arrangement fee calculator questions
What is an arrangement fee on a UK business loan?
An arrangement fee is an administrative charge assessed by a lender for underwriting and processing a commercial credit facility, typically ranging from 1% to 5% of the loan amount.
Is it better to deduct or add the arrangement fee?
Deducting the fee from your advance avoids paying interest on it, but reduces the net cash you receive. Adding the fee gives you the full cash amount but increases your monthly payment and total interest paid.
How does an arrangement fee affect the loan APR?
Because the arrangement fee is a mandatory cost of credit, it increases the effective annual APR above the nominal interest rate, showing the true annual borrowing cost.
Are arrangement fees on business loans tax deductible in the UK?
In general, arrangement fees incurred wholly and exclusively for business finance purposes can be deducted as an allowable commercial expense or amortised over the loan term under HMRC rules.
Can I negotiate the arrangement fee with a lender?
Many commercial lenders, brokers, and alternative credit providers are open to negotiating arrangement fees, especially for larger facilities, strong credit profiles, or repeat borrowers.
Does paying a loan off early refund the arrangement fee?
No. Arrangement fees are earned by the lender upon completion and are non-refundable, even if you redeem or refinance the loan early.
What happens when I change country above the form?
Selecting United States switches to the separate US business loan calculator with origination fee, configured in US dollars with US commercial lending standards and terminology.