Which fees a business loan can carry
A quote often shows the interest rate and leaves the fees to the small print. Fees you can enter here are the lender's arrangement fee (a percentage of the loan, taken from it, added to it or paid separately), a broker fee, legal fees, a valuation fee, a survey or other third-party fee, an account or servicing fee charged with each repayment, and an exit fee paid when the loan ends. Each is entered on its own line so you can see which costs the most.
The calculator uses the same loan engine as the business loan calculator, so the repayment and interest agree to the penny. It then adds the broker, VAT and exit fee lines and restates the APR with all of them counted, as the effective annual rate at which your repayments repay the cash you actually receive.
Worked example: £100,000 over five years at 8%
Take £100,000 at 8% over 60 months with a 1.5% arrangement fee added to the loan (£1,500.00), a 1% broker fee (£1,000.00, no VAT), £1,500 of legal and £750 of valuation fees plus 20% VAT (£2,700.00, of which £450.00 is VAT), a £10 fee with each repayment (£600.00 over the term) and a 1% exit fee (£1,000.00). All fees come to £6,800.00, which is 6.80% of the loan.
The repayment is £2,068.05 a month including the £10 fee, the loan balance at the start is £101,500.00 because of the added fee, and the interest is £21,983.24. The total cost of borrowing is £28,783.24, which is 28.78% of the loan. You pay £3,700.00 in cash at the start. The 8% rate is 8.30% as an effective annual rate; with every fee counted the APR is 11.27%, so the fees add 2.97 percentage points.
Fixed fees weigh more on smaller loans
Legal and valuation fees cost about the same whatever the loan size, so they matter more on a small loan. On £40,000 over 36 months at 11.5%, with a 2% arrangement fee paid separately and the same broker, professional, account and exit fees, the effective annual rate on the interest rate alone is 12.13% but the APR with fees is 21.66%. All fees are £4,660.00, 11.65% of the loan.
VAT on loan fees
HMRC treats lending as exempt from VAT, and administration and documentation fees that are ancillary to the credit fall within that exemption, so a lender's arrangement and account fees do not normally carry VAT. A broker that brings you and a lender together and does work preparatory to the loan is providing an exempt intermediary service, but advice on its own is taxable. Third-party professional fees such as solicitors and valuers are normally subject to VAT at the standard rate of 20%.
Choose the VAT line that matches your quotes. Adding 20% VAT to a broker fee of 2% plus £500 gives a broker fee of £3,000.00 and takes the total to £8,800.00 and the APR to 12.28%. If your professional fees of £2,400, £960 and £480 already include VAT, they total £3,840.00 including £640.00 of VAT. If you are VAT-registered and can reclaim the VAT, choose the no VAT option instead. Whether you can reclaim it depends on your business, so check with your accountant.
Settling early
Enter a month to settle the loan and an early repayment charge to see what the loan costs if you repay early. Settling the example loan after 24 months with a 3% early repayment charge means repaying a balance of £65,676.22 plus a charge of £1,970.29. The total cost of the loan to that point is £21,979.80, including the fees paid so far and the exit fee.
To explore only the arrangement fee, use the business loan calculator with arrangement fee.
To work back from an offer to its APR, use the business loan APR calculator.
What this calculator leaves out
This is a planning calculator for a fixed-rate loan with level monthly repayments. It does not model a variable rate, an interest-only start, a balloon payment or a facility fee that is charged on undrawn funds. A lender's quoted APR follows the lender's own rules and may not count every fee the same way, so the figures in your offer are the ones that count. Check whether a quoted fee is a percentage of the loan or a fixed amount, and whether it is payable even if the loan does not complete.
To see the effect of overpaying, use the business loan payoff calculator.
Inputs for the business loan fees calculator
Loan amount
How much you want to borrow, before any fee is taken from it.
Interest rate
The yearly interest rate on the loan, before fees. Repayments are monthly.
Term
The loan term in whole months, up to 360.
Arrangement fee and how it is paid
The lender's fee as a percentage of the loan, and whether it is deducted from the loan, added to it or paid separately.
Broker fee
A percentage of the loan, a fixed amount, or both, and whether VAT is added.
Legal, valuation and survey fees
Fixed amounts paid at the start, and how VAT applies to them.
Fee with each repayment
An account or servicing fee charged with every monthly repayment.
Exit fee
A percentage of the original loan paid when the loan ends.
Settle early
A month to settle the whole balance and an early repayment charge on the balance repaid.
CALCULATOR QUESTIONS
UK business loan fees calculator questions
How do I work out the total fees on a business loan?
Add each fee: the arrangement fee, broker fee, legal, valuation and survey fees, the fee with each repayment times the number of repayments, and any exit fee. The example comes to £6,800.00, or 6.80% of a £100,000 loan.
Do fees change the APR of a business loan?
Yes. The APR counts the fees against the cash you receive. On the example the effective annual rate on the interest alone is 8.30% and the APR with fees is 11.27%.
Is VAT charged on business loan fees?
Usually not on the lender's own arrangement and account fees, or on a broker that arranges the loan. Solicitors' and valuers' fees normally carry 20% VAT. Choose the VAT lines that match your quotes.
Should the arrangement fee be added to the loan or paid up front?
Adding it means you pay interest on it, which is why the example's loan balance is £101,500.00. Paying it in cash avoids that interest but costs cash at the start. Compare the APR for each choice.
Why do fees matter more on a small loan?
Legal and valuation fees are about the same whatever the loan size. On a £40,000 loan the APR with fees is 21.66% against 12.13% on the interest rate alone.
What does an exit fee cost?
It is a percentage of the original loan paid at the end. A 1% exit fee on £100,000 is £1,000.00, and it is included in the total fees and in the APR.
Is this a quote from a lender?
No. It is an illustration based on the fees and rate you enter. Lenders can quote fees and APR differently, so use the figures on your offer.