Quick summary

Short answer: sometimes. Whether refinancing or switching lenders triggers an early repayment charge (ERC) or exit fee depends on the product type, whether you’re on a fixed interest period, and the terms in your loan agreement. Some business loans (notably fixed-rate commercial loans, business mortgages, asset finance and bridging/development facilities) commonly include contractual exit or break costs. Other facilities such as overdrafts or variable-rate loans may only have modest administration or notice-period charges. Always request a written settlement or redemption figure from your current lender and compare it to any fees and costs the new lender charges before deciding to refinance.

UK Business Loans introduces businesses to lenders and brokers — we are not a lender and we do not provide regulated financial advice. Use this page as a practical guide and ask lenders for written figures.

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Why this matters

Unexpected early repayment or exit fees can turn an apparently attractive refinance into an expensive decision. For businesses arranging loans of £10,000 and above, even a small percentage fee applied to a sizeable outstanding balance can outweigh prospective interest savings. This article explains which products commonly have exit costs, how lenders calculate them, what to ask for, and how to decide whether switching lenders is financially sensible.

Do refinancing / switching lenders usually result in fees?

In short: sometimes — it depends entirely on the product and your contract. Below is a product-led guide so you can quickly see where fees are most common.

• Commercial business loans — often include early repayment charges, especially if the loan is secured or on a fixed interest rate for a set period.
• Business mortgages / commercial property loans — frequently have ERCs plus legal, valuation and redemption administration fees.
• Asset finance (HP, finance lease, hire purchase) — expect a settlement figure; early termination can include outstanding capital, interest and possible return/inspection costs.
• Invoice finance / merchant cash advances — mechanics differ: look for notice periods, termination fees or pro‑rata reconciliation clauses.
• Overdrafts & revolving facilities — less likely to carry large ERCs but may require notice or a cancellation fee.
• Bridging & development finance — often the most likely to include explicit exit fees and arrangement or monitoring charges.

The definitive source is always your loan agreement and the lender’s terms and conditions. If in doubt, request a settlement statement in writing.

How early repayment and exit fees are calculated

Lenders typically use one of two approaches to calculate exit costs:

1. Fixed schedule — a simple fixed percentage of outstanding balance, often reducing over time (for example, 3% in year 1, 2% in year 2, nil thereafter). This is straightforward to forecast.
2. Breakage or compensation basis — common for fixed-rate loans. The lender attempts to quantify its actual financial loss from the borrower repaying early (for example, costs of closing a hedging instrument, or the difference between contracted rate and current market rate). These calculations can be complex and sometimes significantly higher than a simple percentage fee.

Elements that commonly feed into the calculation:

• Outstanding principal or remaining balance
• Remaining term of the loan
• Interest differential between your rate and current market rates (for fixed deals)
• Hedging or swap termination costs borne by the lender
• Administration, legal and valuation fees

Worked examples

Example A — Variable-rate business loan with a 1% exit fee on balance: if you have £100,000 outstanding you would normally pay a £1,000 exit fee (plus any standard legal/administration costs).

Example B — Fixed-rate secured loan with breakage: the lender may calculate the difference between the fixed rate you contracted for and the lower market rate for the remainder of the term and charge the net present value of that shortfall; this can equal several months’ interest or more.

Tip: always request a written settlement/redemption figure that itemises each fee and shows the calculation basis before you commit to refinance.

Product-specific notes: what to watch for

Business mortgages / commercial property

• ERCs are common within fixed or discounted periods.
• Expect solicitor redemption fees, lender release of security fees and valuation charges.

Asset finance (leasing, HP, finance lease)

• Ask for a settlement figure — it usually includes outstanding rentals, interest and residual value adjustments.
• For leases, early termination may require the asset’s return and inspection/repair charges.

Invoice finance & merchant cash advance

• Contracts may include notice periods, early termination admin fees or reconciliation of facility fees.

Overdrafts & revolving facilities

• Not typically subject to large ERCs, but banks may require notice or charge cancellation fees.

Bridging & development finance

• High chance of structured exit fees, monitoring and exit arrangement costs.

For an overview of refinancing products with guidance on costs and typical uses, see our page on refinance loans.

When refinancing still saves money — a practical checklist

Even if an exit fee applies, refinancing can still be the right move. Use this checklist to decide.

1. Request a written settlement/redemption figure from your current lender that breaks down the exit cost.
2. Obtain full written quotes from prospective new lenders showing rate, fees (arrangement, valuation, legal) and any ongoing charges.
3. Calculate the net benefit: total cost to refinance (exit fee + new arrangement fees) versus projected interest savings over a comparable period (or present-value equivalent).
4. Factor in non‑financial benefits: improved covenants, longer term, consolidation of multiple facilities, or more flexible repayment options.
5. Consider alternatives: negotiate with your existing lender, delay refinancing to after the fixed period, or partially refinance only part of the debt.

If you’d like help comparing net costs and lender options, Get a Free Eligibility Check — Get Quote Now.

How UK Business Loans helps

UK Business Loans connects businesses to lenders and specialist brokers who can provide tailored settlement figures and refinance quotes. Our process is simple:

1. You complete a short enquiry form (takes around 2 minutes).
2. We match your request with lenders and brokers experienced in your sector and finance type.
3. Matched partners request a settlement figure from your current lender (or ask you to request one) and return bespoke refinance options.
4. You compare offers and choose what suits you — there’s no obligation to proceed.

We act as an introducer — not a lender — and do not provide regulated financial advice. Our service is free and designed to save you time and surface options you might not find alone.

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Practical steps before switching lenders

Follow these steps to avoid surprises when you refinance or switch lenders.

1. Read your loan agreement to locate any ERC or breakage clause.
2. Request a formal settlement/redemption statement in writing from your current lender.
3. Ask whether any consent, notice period or prepayment procedure is required.
4. Check whether releasing security (e.g. a legal charge) triggers solicitor or administrative fees.
5. Consider accounting, tax and covenant implications (speak to your accountant or advisor).
6. Get multiple written offers from new lenders or brokers to compare all costs.

If exit fees are large: discuss options with your lender — some will negotiate reduced charges to retain a customer, or the new lender may agree to roll the fee into the new facility (which increases borrowing costs).

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Common myths and quick answers

• “Switching lenders is always free.” — No. Many commercial products carry ERCs or other exit costs.
• “Only mortgages have early repayment charges.” — ERCs can appear across many commercial loan and asset finance products.
• “Break costs are always huge.” — They can be significant for long fixed-rate deals, but a concrete settlement figure will show the true amount and allow comparison.

FAQ

Will a new lender pay my exit fee?

Usually not. Some lenders will allow you to roll the fee into a new loan, which increases the amount borrowed and total interest cost. Always get options in writing.

Do I have to tell my current lender if I’m switching?

Check your agreement — some contracts require notice; others don’t. You may also need the lender’s consent if security or covenants are affected.

Can exit fees be negotiated?

Sometimes. Lenders may reduce charges to retain customers. Any negotiated agreement must be documented in writing.

How long does it take to get a settlement figure?

Typically a few days to a week, depending on the lender and complexity of the facility. Ask for it in writing and check the date it applies to.

Will refinancing affect my credit?

Submitting an enquiry through UK Business Loans does not affect your credit score. Matched lenders may perform credit checks during the application process — ask before they do.

Is UK Business Loans a lender or regulated adviser?

We introduce businesses to lenders and brokers. We are not a lender and we do not provide regulated financial advice.

Disclaimer

This page is for information only and does not constitute financial, legal or tax advice. UK Business Loans introduces businesses to lenders and brokers; we are not a lender and do not provide regulated financial advice. Always request written settlement figures from your existing lender and consider consulting your accountant or a regulated adviser where appropriate.