Pricing
Arrangement fee
The arrangement fee is what a lender charges for putting the facility in place. It is taken at drawdown, so it never reaches your account, and it varies by lender type more than by deal size.
Also called upfront fee · structuring fee · facility fee · front-end fee · completion fee
The fee tracks the lender, not the deal. A fund charges multiples of what a clearing bank does for the same facility.
| Lender type | Arrangement fee |
|---|---|
| Clearing bank | Nearer 1% |
| Challenger bank | 1% to 1.75% |
| Debt fund | 1.5% to 3% |
Market convention at £3-15m. Individual facilities vary.
What the fee is for
The arrangement fee, also called an upfront, structuring or completion fee, is what a lender charges for originating, underwriting and documenting the facility. It is earned at drawdown rather than over the life of the loan, and it is almost always netted from the proceeds rather than invoiced, so it never reaches your account.
It is the largest single charge a borrower meets at completion, and it is the one most reliably forgotten when comparing offers on margin alone. On a £10m facility the difference between a bank fee and a fund fee is roughly £150,000 of cash on day one, which is real money against a margin difference that might take two years to accumulate the same amount.
What it costs by lender type
The fee tracks the lender far more closely than the deal. On a bank deal it sits nearer 1% of the facility. On a debt fund or private credit facility it runs around 1.5% to 3%.
That spread reflects two things. Funds have a higher cost of capital and recover more of their return at the front, and fund deals typically involve more structuring work: bespoke covenants, an intercreditor arrangement, a tailored amortisation profile. A clearing bank writing a standard bilateral facility against a familiar covenant package is doing less work and charging accordingly.
Size moves the percentage less than borrowers expect. A £15m facility does not usually attract half the percentage of a £5m one, because the underwriting work does not halve. What size does change is the absolute number, and at £250,000 on a £10m fund facility the fee becomes worth negotiating in its own right.
The percentage is small and the cash is not. On £10m the gap between a bank fee and a fund fee is about £150,000.
| Scenario | Fee |
|---|---|
| £5m bank at 1% | £50k |
| £5m fund at 2.5% | £125k |
| £10m bank at 1% | £100k |
| £10m fund at 2.5% | £250k |
Worked example: 1% on £5m and 2.5% on £10m. Derived comparisons alongside.
Charged on the commitment or the drawing
This is the detail that decides what the fee costs on a structured facility, and it is settled in the drafting rather than the term sheet.
Most arrangement fees are charged on the total commitment, meaning the full facility amount the lender has agreed to make available. Where a structure includes a delayed-draw tranche, an accordion or a revolving facility you do not expect to use, a fee on the commitment is payable on money you may never borrow. A fee charged on the drawn amount bites only on what you take.
On a £10m structure comprising a £7m term loan and a £3m undrawn accordion, a 2% fee on the commitment is £200,000 while the same fee on the drawn amount is £140,000. Ask which basis applies, and where the fee is on the commitment, ask whether the accordion portion can be deferred until drawn.
How it differs from OID
Both are taken at drawdown and both reduce net proceeds, so they are commercially close. Mechanically they are different instruments and the difference matters on structured facilities.
An arrangement fee is a stated percentage charged as a fee, usually on the commitment. Original issue discount is a reduction in the principal advanced, expressed as a price such as funding at 98 to 99, and it typically attaches only to the amount funded. A fund deal frequently carries both, which is how a facility quoting a competitive margin can still deliver noticeably less cash than the face amount suggests.
For comparison purposes, convert both into pounds at drawdown and into a percentage of the money that reaches you. Comparing a 1% fee against 2 points of OID as though they were the same thing understates the OID, because the discount reduces the base the fee itself is calculated on.
The arrangement fee is the largest upfront charge, but it is not the only one taken before the money lands.
| Charge | Relative size |
|---|---|
| Agency / trustee fee | Annual, small |
| Diligence costs | Borrower pays |
| Lender legal fees | Borrower pays |
| Original issue discount | 1 to 2 points |
| Arrangement fee | 1% to 3% |
Relative size at drawdown on a fund facility. Individual deals vary.
The other fees it is confused with
Three charges are routinely conflated with the arrangement fee and are separate.
A commitment or non-utilisation fee is charged periodically on the undrawn portion of a revolving facility, so it is a running cost rather than an upfront one. An agency or security trustee fee is an annual administrative charge, usually a few thousand pounds, payable where there is more than one lender or a security trustee arrangement. And an exit fee or prepayment charge falls at the end rather than the beginning: call protection commonly steps 3% in year one, 2% in year two, 1% in year three and then par.
None of these is large individually. Together they can add materially to a facility that looked competitive on margin and arrangement fee alone, which is why an all-in comparison expressed in pounds over the expected holding period is the only reliable way to rank offers.
Accounting and how it lands in the numbers
In broad terms the fee is not expensed in full at drawdown. Under an effective interest method it forms part of the cost of borrowing and is amortised over the life of the facility, with any unamortised balance generally written off on early repayment. The tax position for UK corporates broadly follows the accounting under the loan relationship rules, subject to the corporate interest restriction. That is a general description and the treatment depends on the structure, so it is a question for your own advisers.
The point that matters commercially is that the cash leaves on day one regardless of how the accounts spread it. A business sizing a facility to fund a fixed requirement, such as an acquisition price, must gross up for the fee and any discount, or the facility will be short at completion.
What moves in negotiation
More than most borrowers try. The fee is a price, and it is set with an expectation of some negotiation.
Four things move. The percentage itself, particularly where a competitive process is visibly running. The basis, from commitment to drawn amount, which is often easier to win than a rate reduction and worth more on a structure with undrawn tranches. The treatment of an accordion, so the fee on incremental commitments is charged when drawn rather than at close. And the trade against margin, since a lender that would rather have certainty at the front may accept a lower fee for a higher margin, or the reverse, and finding out which they prefer tells you how long they expect to hold the loan.
What rarely moves is the fee on a facility where only one lender is at the table. The single most effective lever on an arrangement fee is a credible alternative offer.
Common questions
How much is an arrangement fee on a UK business loan?
It depends on the lender type more than the deal size. On a bank deal it sits nearer 1% of the facility. On a debt fund or private credit facility it runs around 1.5% to 3%. On £5m at 1% that is £50,000; on £10m at 2.5% it is £250,000.
When is the arrangement fee paid?
At drawdown, and almost always netted from the proceeds rather than invoiced. It never reaches your account, which is why a facility sized to fund a fixed requirement has to be grossed up for the fee and any original issue discount, or it will fall short at completion.
Is the arrangement fee charged on the whole facility or just what I draw?
Usually on the total commitment, which means you pay on money you may never borrow. Where a structure includes a delayed-draw tranche or an accordion, ask for the fee to bite on the drawn amount instead. On a £10m structure with a £3m undrawn accordion, a 2% fee is £200,000 on the commitment against £140,000 on the drawn amount.
Is an arrangement fee the same as OID?
No, though both are taken at drawdown and both reduce net proceeds. An arrangement fee is a stated percentage charged as a fee, usually on the commitment. Original issue discount reduces the principal advanced, is expressed as a price such as funding at 98, and typically attaches only to the amount funded. Fund deals often carry both.
Is the arrangement fee negotiable?
Yes, and more than most borrowers try. The percentage moves where a competitive process is visibly running. The basis can often shift from commitment to drawn amount, which is easier to win than a rate cut and worth more on a structure with undrawn tranches. It can also be traded against margin. What rarely moves is a fee where only one lender is at the table.
Why do funds charge more than banks?
Two reasons. Funds have a higher cost of capital and recover more of their return at the front of the loan rather than over its life. And fund deals usually involve more structuring work: bespoke covenants, intercreditor arrangements, tailored amortisation. A bank writing a standard bilateral facility against a familiar covenant package is doing less and charging accordingly.
What other upfront costs should I expect?
The lender's legal fees and diligence costs, both usually borne by the borrower, and on a fund deal original issue discount of one to two points. Separately there may be an annual agency or security trustee fee, a commitment fee on any undrawn revolving facility, and call protection at the end, commonly stepping 3% in year one, 2% in year two and 1% in year three before falling to par.
Does a bigger facility get a lower percentage?
Less than borrowers expect. The underwriting work does not halve when the facility doubles, so a £15m facility rarely attracts half the percentage of a £5m one. What changes is the absolute number, and at £250,000 on a £10m fund facility the fee becomes worth negotiating as a line item in its own right.
The full treatment sits in the guide: all in cost of debt.
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.