Arrangement fee

Definition

An arrangement fee (or facility fee) is a charge levied by some lenders for arranging a loan, usually a fixed sum or a percentage of the amount borrowed, payable at the outset or added to the balance.

In plain terms

It's the cost of setting the loan up, separate from interest. A low rate with a hefty arrangement fee can be dearer than a clean higher rate.

Why it matters for your company

Always fold arrangement fees into the total cost when comparing offers. See business finance fees explained and the true cost calculator.

In practice

Picture a UK limited company comparing two offers for the same facility. One quotes a plain interest rate with no arrangement fee; the other quotes a lower headline rate but adds an arrangement fee on top. A director who only compares the rates on the two offers can easily pick the more expensive option without realising it, because the fee changes the true cost of borrowing even though it never appears in the interest-rate line.

In practice, the fee is usually settled in one of two ways: deducted from the funds released, so the company receives less than the facility limit, or added to the balance and repaid alongside the rest of the borrowing. Either way, it is worth asking the lender to state clearly which method applies, since it changes how much cash actually reaches the business on day one and how the fee interacts with any early-repayment terms.

How lenders read it

From a lender's side, an arrangement fee typically covers the work of assessing and setting up a facility — underwriting, documentation and administration — rather than being a charge for the ongoing use of funds, which is what the interest rate is for. Some lenders separate the two deliberately so a business can see the setup cost and the running cost as distinct line items rather than one blended number.

A useful habit when reading any offer is to treat the arrangement fee as part of the same comparison as the rate, not a footnote beside it. The business finance fees explained guide and the true cost calculator are both built around that same principle — pulling every fee into a single comparable figure so no offer looks artificially cheap.