Construction business loans — can I repay early, and will I incur early settlement fees?

Summary — quick answer

Yes — you can usually repay a construction loan early. Whether you pay an early settlement fee depends on the loan type (development finance, bridging, staged drawdown), the lender’s contract (early repayment charge or ERC), timing (within fixed-rate or incentive periods) and whether the repayment is partial or full. For tailored options and likely costs, Get Quote Now — Free Eligibility Check.

Get Quote Now — Free Eligibility Check

Quick answer / TL;DR

Most construction loans can be settled early, but fees vary. Typical charges are percentage-based ERCs, fixed exit/admin fees or hedging break costs for fixed-rate agreements. Ask your lender for a written payoff figure and compare potential savings versus fees before you commit. Free Eligibility Check.

What is a construction loan?

Construction (or development) finance covers short- to medium-term funding for building or converting property. Common forms include staged development loans (drawn as the build progresses), short-term bridging loans (to be repaid on sale or refinancing), and term commercial loans secured on property. Interest is often charged only on drawn amounts, and repayment structures differ from standard term business loans because cashflows depend on project milestones and sales.

For an overview of options and lenders that specialise in this area, see our construction business loans page on the site for more detail on typical products and lenders. construction business loans

Why borrowers consider early repayment

• Refinancing to cheaper long-term finance after practical completion.
• Sale of finished units or a completed development provides funds to redeem the loan.
• Improved cash position or desire to reduce secured liabilities.
• Reducing interest costs if remaining term and fees mean settlement is cheaper than continuing.

Before repaying, check tax or accounting implications with your accountant — particularly if you’re changing the structure of finance mid-project.

How early repayment works for construction loans

How you repay early depends on the product:

• Staged drawdown / development loans — interest charged on each draw; you can usually repay drawn amounts early once units are sold or re-finance the whole facility on completion. The lender’s redemption calculation will include outstanding drawn sums plus accrued interest and any contractual fees.
• Bridging loans — intended for short terms and commonly repaid on sale or refinance. Lenders often permit early repayment but may charge an ERC, particularly if you leave within an initial lender incentive period.
• Term commercial loans — governed by the loan agreement’s redemption terms; early settlement often triggers a pre-agreed ERC or break cost if the lender has hedged rates.

Key contract items to check: early repayment clause, ERC percentage or formula, notice period for settlement, whether partial repayments are allowed, and whether interest is calculated daily or on a rolled-up basis. Check for an explicit “redemption figure” process so you can receive a precise payoff amount.

Check: look for the loan agreement’s “Early Repayment”, “Redemption” or “Break Costs” clauses — this tells you exactly what the lender can charge.

Will I incur early settlement fees?

Short answer: sometimes. Construction finance is typically commercial lending, and consumer protections that limit or prohibit ERCs for regulated consumer loans don’t apply in the same way.

Whether you’ll pay depends on:

• Type of loan and lender policy — specialist development lenders, banks and bridging lenders each handle ERCs differently.
• Timing — early settlement during an initial fixed/incentive term is most likely to attract a fee.
• Whether repayment is partial or full — some lenders allow small partial pre-payments without charge but apply ERCs on full redemption.

Typical fee structures

• Percentage-based ERC: common amounts range from 1%–5% of the outstanding balance (or higher in some bespoke facilities).
• Fixed admin/exit fee: a set fee to process redemption — often a few hundred to several thousand pounds depending on lender and facility size.
• Interest break/bank hedging costs: if the lender hedged a fixed-rate portion, you may pay a compensation cost to cover their position.
• No-fee options: some brokers/lenders promote partial repayment flexibility or fixed caps on ERCs — these can be negotiated at origination.

Realistic example

If you have £500,000 outstanding and the ERC is 3% on full settlement, the ERC equals £15,000 plus any accrued interest and admin/exit fees. Always get a written settlement figure that itemises all amounts.

Quick fee comparison table

Fee type	How charged	Typical example
Percentage ERC	% of outstanding on full settlement	1–5% (e.g., 3% on £500k = £15k)
Fixed exit/admin fee	One-off set amount	£250–£1,500+
Hedging / break costs	Lender’s actual hedging loss or formula	Varies — can be material on long fixed-rate deals
No-fee / capped	Promotional or negotiated term	May be available with specialist brokers

How to reduce or avoid early settlement fees

• Negotiate flexible repayment terms or capped ERCs before you borrow.
• Choose lenders or brokers who allow partial pre-payments without penalty.
• Time settlement to fall after an initial fixed/incentive period expires.
• Refinance via a new lender — sometimes novation avoids ERCs but not always; confirm whether the current lender treats refinance as a redemption.
• Ask for a waiver on commercial grounds — lenders may agree if your exit is from a planned sale or credible refinance.

Checklist to ask any lender or broker:

• Request a written breakdown of early repayment fees and how they’re calculated.
• Confirm notice periods and required settlement documentation.
• Ask whether interest is calculated daily and what the settlement expiry date will be for any payoff figure.

Get Quote Now — Free Eligibility Check to see lenders/brokers who can offer flexible exit terms.

Steps to repay a construction loan early — practical checklist

1. Review your loan agreement and locate the early repayment/redemption clause.
2. Contact your lender and request a formal payoff/settlement figure in writing (include calculation date).
3. Confirm any notice period, how interest is calculated to settlement day and whether any security/legal fees apply.
4. Compare refinance or new lender offers if you plan to replace the facility.
5. Arrange funds (sale proceeds, refinance drawdown or company funds) and agree the settlement date with the lender.
6. Obtain a full redemption statement once paid and keep records for your accountant and solicitor.

When early repayment makes financial sense — pros & cons

Pros: saves future interest, reduces secured liabilities, can improve balance sheet gearing and free up headroom for new borrowing.

Cons: ERCs and refinancing costs may outweigh savings; you may lose promotional benefits agreed at origination; there can be administrative and legal costs.

Decision checklist — run a simple comparison:

• Cost to settle now = ERC + accrued interest + admin/exit fees + legal costs
• Cost to continue = projected interest to maturity + any fees

If “Cost to settle now” is smaller than “Cost to continue,” early repayment typically makes sense — otherwise refinance or wait.

How UK Business Loans can help

UK Business Loans introduces businesses to specialist lenders and brokers who can provide quotes and solutions for construction and development finance (loans from around £10,000 upwards). We do not lend and do not provide regulated financial advice — we simply match your enquiry to the best-fit lenders and brokers who can contact you with options.

Your initial enquiry is not an application and will not affect your credit score. Complete a short form and we’ll connect you to suitable partners who understand construction finance and early repayment terms. Start your Free Eligibility Check.

Frequently asked questions

Can lenders refuse a request to repay early?

It’s rare for a lender to refuse full settlement — the right to be repaid is fundamental — but they can insist you meet contractual notice periods and pay any contractual ERC or break costs. If you plan to repay early, request a written payoff figure and settlement process.

Does refinancing always avoid ERCs?

Not always. Some lenders treat refinance by another lender as redemption and apply ERCs; others permit transfer/novation arrangements that can limit costs. Always confirm the current lender’s position in writing before proceeding.

Are construction loans regulated differently to residential mortgages?

Construction finance is typically commercial lending for businesses. Different consumer protections apply compared with regulated residential mortgages. That’s why contract terms and ERCs are largely a matter of the loan agreement.

How long does it take to get a payoff figure?

Most lenders will provide a written payoff figure within a few working days. For complex facilities with multiple drawings and interest calculations it may take longer — allow extra time and confirm the expiry date of the payoff figure.

Will enquiring through UK Business Loans affect my credit score?

No. Submitting an initial enquiry via UK Business Loans is not a lending application and will not be recorded on credit files. Lenders or brokers may carry out credit checks only if you proceed with an application.

What information do lenders need to provide a settlement quote?

Typically: your loan account details, current outstanding balance, date you want to settle, details of any proposed refinance, and information on any sales or receipts you plan to use to settle. The lender will return a settlement invoice showing exact amounts due.

Next steps — ready to check your options?

If you’re considering early repayment of a construction loan, get a written payoff figure and compare the total costs versus continuing the loan. For a quick, free, no-obligation match to specialist lenders and brokers, complete our short enquiry and we’ll connect you with the best-fit partners.

Get Quote Now — Free Eligibility Check

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All lenders and brokers we introduce to you will set their own terms and conditions; always read lender documentation carefully and consider professional legal, tax or accounting advice where appropriate.

construction business loans

1. Can I repay a construction loan early without paying a penalty? — Often yes, but many construction, bridging or development loans carry an early repayment charge (ERC) or admin/break costs depending on the loan terms and timing, so always request a written settlement figure.

2. What is an early repayment charge (ERC) on a construction or development loan? — An ERC is a lender fee for settling all or part of a loan before the agreed end date and is usually charged as a percentage of the outstanding balance, a fixed exit fee, or as a hedging/breakage cost on fixed-rate deals.

3. How much do ERCs typically cost on construction and bridging loans? — Typical ERCs range from around 1%–5% of the outstanding balance (plus any admin/exit fees or hedging costs), though amounts vary by lender and bespoke facility.

4. Will enquiring through UK Business Loans affect my credit score? — No — submitting an initial enquiry via UK Business Loans is not a loan application and will not be recorded on your credit file, though lenders may run credit checks only if you choose to proceed.

5. How quickly can my lender provide a payoff/settlement figure for early repayment? — Most lenders supply a written payoff/settlement figure within a few working days, but complex staged or multi-draw development facilities can take longer.

6. Does refinancing always avoid early repayment fees on a construction loan? — Not always — some lenders treat refinance as a redemption and apply ERCs while others may permit novation or waive charges, so you must confirm the lender’s position in writing.

7. What documents or information will lenders need to provide a settlement quote or new loan offer? — Lenders typically require your loan account details, current outstanding balance, desired settlement date, details of any refinance or sale proceeds, and basic business and security information to produce accurate figures.

8. Can I make partial repayments on a construction loan without penalty? — Some specialist lenders and brokers negotiate partial pre-payment flexibility or capped ERCs at origination, but whether partial repayments are penalty-free depends on the specific loan terms.

9. How can I reduce or avoid early settlement fees on development finance? — You can reduce costs by negotiating capped ERCs before borrowing, timing settlement after incentive periods, seeking waivers on commercial grounds, or arranging a novation/refinance confirmed in writing by the current lender.

10. How does UK Business Loans help me find construction finance with flexible exit terms? — UK Business Loans matches your free eligibility enquiry to specialist brokers and lenders who understand construction and development finance, helping you compare options and negotiate flexible repayment or capped ERC terms (we do not lend or provide regulated financial advice).