Origination fee

What is an origination fee?

An origination fee pays the lender for underwriting, documenting and funding your loan. It is charged once, at funding, and almost always netted out of the proceeds rather than billed separately. A $100,000 loan with a 3% fee lands in your account as $97,000.

Banks sometimes charge a flat amount instead. SBA lenders pass through an SBA guarantee fee set by the government, plus their own packaging fee. Cash advance providers often call it a funding or underwriting fee. Whatever the name, it belongs in your cost comparison, and it is the main reason APR is higher than the quoted interest rate.

How is an origination fee calculated?

The fee is a percentage of the loan amount, taken out before you receive the money.

• You are approved for $100,000 at 10% interest over three years with a 3% origination fee.
• The fee is $3,000, so $97,000 arrives in your account.
• Your payments are still based on $100,000, about $3,227 a month.
• Because you pay interest on $3,000 you never received, the APR is roughly 12%, not 10%.

If you need a full $100,000 in hand, ask the lender to gross up the loan to about $103,100 so you still net $100,000 after the fee. Our business loan calculator shows the payment either way.

What do lenders consider normal?

Origination fees typically run from 1% to 6% of the loan amount. Banks typically charge 0.5% to 2% or a flat fee. Online term lenders typically charge 2% to 6%. Cash advance providers typically charge 1% to 5% on top of the factor rate. SBA 7(a) loans carry a government guarantee fee that scales with loan size and a capped lender packaging fee.

A fee at the high end is not automatically a bad deal if the rate is low and the term is long. A low fee on a loan you repay in four months can still be expensive. See business loan rates explained for how fees combine with rate.

What should you watch for?

Watch for any fee charged before funding. A real origination fee is deducted at funding. Anyone asking you to wire a fee first to release the loan is almost always running a scam, and our guide on business loan scams explains the pattern.

Watch for fees stacked under different names: origination, processing, underwriting, documentation and ACH setup on one loan. Add them all up. Watch for a fee charged again on renewal, since renewing a short term loan every few months can mean paying 5% four times a year. Ask for total fees in dollars on the term sheet.

Related terms

The origination fee is the main reason APR sits above the stated rate, and on cash advances it stacks on top of the factor rate. It should appear as a line item on every term sheet. You will see the widest range on short term loans and the most structure on SBA 7(a) loans. You can apply here, or ask your AI assistant to total the fees across your offers and apply for you through our MCP server.