Private Loan Fees: Establishment, Brokerage and Exit Costs

Key takeaways

• Establishment and brokerage are percentage-based; legals, valuation and discharge are largely fixed.
• Brokerage is paid to the broker who arranged the loan and should be disclosed to you in writing.
• Capitalised fees attract interest and consume LVR headroom.
• Third-party costs are payable whether or not the loan proceeds to settlement.

What is brokerage on a private loan?

Brokerage is the fee paid to the broker who arranged the facility, usually calculated as a percentage of the loan amount and deducted at settlement. It is separate from the lender's own establishment fee, and on a private deal both are commonly charged on the same loan.

It must be disclosed to you before settlement. If you cannot see in writing who is being paid what, that is the question to ask before signing anything - not after. A broker who will not put their fee in writing is telling you something.

Brokerage is one of the more negotiable costs in the structure, particularly on larger facilities, because it is a fee for arrangement rather than a cost the lender incurs.

The full fee list

Every private facility carries some version of the following. The amounts vary widely; what should not vary is that all of them appear in your letter of offer before you sign.

Legal and valuation costs are usually payable whether or not the deal settles, because the work has been done. Ask what happens to them if the transaction falls over - that answer belongs in your budget for a deal that might not proceed.

Which fees are worth arguing about

Focus on the percentage-based fees, because they scale with the loan and are where the real money is. A one-point reduction in establishment fee on a $1,000,000 facility is $10,000 - far more than you will ever recover by haggling over a discharge fee.

Fixed third-party costs are largely not worth contesting; the lender is passing through what a valuer and a solicitor charged. What is worth contesting is being charged twice for the same thing, or a fee appearing at settlement that was not in the letter of offer.

The most valuable thing to negotiate is not a fee at all - it is the extension terms. Agreeing now what a three-month extension will cost is worth more than a small discount today, because that is the clause you will need if your exit slips.

Frequently asked questions

How much is brokerage on a private loan?

It is a percentage of the loan amount, set by the broker rather than the lender, and it is commonly negotiable on larger facilities. It must be disclosed to you in writing before settlement.

Do I pay the fees upfront or from the loan?

Most private facilities capitalise them, so they come out of the advance or are added to the balance. That preserves your cash but means you pay interest on the fees and need the higher balance to still fit the lender's maximum LVR.

What if the deal does not settle?

Legal and valuation costs have usually been incurred by then and remain payable. Ask specifically what you are liable for if the transaction falls over, before those costs are triggered.

Related reading

• What Private Lending Actually Costs in Australia
• Bad Credit Business Loans: What Is Actually Available
• Low Doc Business Loans: How They Work and What They Cost

Sources

• Moneysmart - fees and charges — ASIC
• Credit guide requirements — ASIC