Quick answer
An establishment fee is a one-off charge a lender makes for setting up a new loan: assessing it, preparing documents and registering security. It's usually a flat dollar amount or a percentage of the loan, and many lenders deduct it from the money advanced, so you receive less than the loan amount. Because it's paid once, its true weight depends on how long you keep the loan.
Key points
- Charged once, at the start, for setting the loan up
- Often deducted from the advance, so the cash you receive is smaller than the loan
- Heavier per month on a short loan than on a long one
- Agreed upfront, so the time to question it is before you sign
Every new loan creates paperwork before a dollar moves. Someone checks your application, a solicitor or the lender’s team draws up the documents, and security gets registered on a title or the PPSR. The establishment fee is how the lender recovers that cost, charged once, at the beginning.
What the fee usually pays for
The label is broad, and lenders bundle different things into it. Commonly included:
- assessing the application and your financials
- preparing the loan agreement and security documents
- registering a mortgage, caveat or PPSR security interest
- settling the loan and paying out the funds
Some lenders break these into separate lines instead, such as an application fee, a valuation fee, legal fees and settlement fees. Others roll everything into one figure. For comparison purposes it doesn’t matter what each charge is called; what matters is the total you pay to get the loan started, which you’ll find in the fee section of the letter of offer.
Why it can matter more than it looks
Two features make this fee easy to underestimate.
It often comes out of your advance. If a lender approves $100k and deducts the fee at settlement, you receive less than $100k but owe the full amount. Business owners who need an exact sum in hand, say to clear a tax bill or meet a settlement, should borrow enough to cover the fee as well.
It’s spread over however long you keep the loan. A $4,000 fee on a five-year equipment loan works out to under $70 a month. The same $4,000 on a three-month bridging loan is more than $1,300 a month. Short-term and private loans often carry larger establishment fees for exactly this reason, so on a short loan the fee can be a big share of the overall cost.
Can an establishment fee be challenged later?
Rarely. ASIC’s information sheet on small business contract fairness (INFO 211) uses this very fee as an example: an establishment fee is part of the upfront price of the loan, and the upfront price is excluded from the unfair terms rules. Fees that only arise if something happens later, such as late payment or default fees, are a different story and can be tested for fairness.
The practical lesson is simple. The establishment fee is fixed the moment you accept the offer, so question it, compare it and negotiate it before you sign, not afterwards.
Example: two offers on a $150k second mortgage
A Bendigo bakery owner needs $150k for an oven and fit-out, with their home as second-ranking security, and expects to refinance to the bank within 12 months.
| Cost item | Offer A | Offer B |
|---|---|---|
| Establishment fee | $4,500 | $1,500 |
| Other upfront fees | $1,200 | $1,200 |
| Ongoing cost over 12 months | $21,000 | $24,000 |
| Total cost over 12 months | $26,700 | $26,700 |
Over a full year the two offers cost the same. But if the bank refinance lands after six months and the ongoing cost halves, Offer B comes out about $1,500 cheaper, because less of its cost was locked in upfront. Run your own offers through the loan cost comparison calculator, or if you’d like a second opinion, send us the details.
Related terms
Fees at the other end of a loan are covered under exit fee and break costs. Our guide to how fees change the cost of a loan puts all of them together.
Weighing up a loan offer and its fees?
The fee table is where a lot of loan offers quietly differ, and it’s much easier to compare them with someone who reads these documents every day. Give us the amount, the purpose and any security on our enquiry form, a job of about a minute. It’s a no-credit-check step, so your file stays untouched. Your enquiry isn’t blasted out to every funder in the country; a member of our team looks over your situation personally and gives you a call. Fill it in carefully, because precise answers let us line up a suitable match without guesswork.
Frequently asked questions
Is an establishment fee the same as an application fee?
They overlap, and some lenders use the names interchangeably. Where both appear, an application fee is usually charged for assessing the application, sometimes even if it doesn't proceed, while the establishment fee is charged when the loan settles. Read the fee schedule in the letter of offer to see exactly what each one covers.
Can I add the establishment fee to the loan?
Usually, yes. Most business lenders either deduct it from the advance or add it to the balance. Either way you're paying interest or a factor on it, so it's worth asking whether paying it separately would reduce the total cost.
Is a business loan establishment fee tax deductible?
Generally it's treated as a borrowing expense. Under ATO rules, borrowing expenses over $100 on money borrowed to earn income are usually spread over the shorter of five years or the loan term, with any balance claimed if the loan is repaid early. Your accountant can confirm how it applies to your structure.
Do I get the establishment fee back if I repay early?
Almost never. It pays for work done at the start, so it's earned once the loan settles. That's one reason a loan you expect to pay out quickly should be compared on its fees, not just its ongoing cost.
Can I negotiate an establishment fee?
Sometimes. Lenders have more room on larger, well-secured loans and when they're competing for your business. A broker or specialist can tell you whether a fee is in line with the market for that kind of loan.