Are early repayments allowed, and are there any settlement or exit fees?
Part 1 of 5: The short answer – early repayments and fees in UK business finance
Yes, early repayments are often allowed in UK business finance, but the rules and costs vary by product and lender. Some agreements let you repay in full or overpay without penalty, while others apply early repayment charges, break costs, or a minimum interest rule. Always read your agreement and request a written settlement figure before making a decision.
Fixed-term business loans may include an Early Repayment Charge (ERC) or require you to pay interest up to a minimum period. Revolving facilities, like lines of credit, are usually more flexible and typically allow you to clear the balance at any time with interest only accrued to the repayment date. Asset finance, invoice finance, and merchant cash advances each have their own settlement mechanics, which can include admin or exit fees.
Best Business Loans is an independent introducer that helps you compare provider terms and understand early repayment implications. We do not supply loans or set fees, and we always encourage fair, clear, and not misleading information. Submit a Quick Quote to see providers that match your profile and to confirm their early settlement policies in writing.
What this page covers
- How early repayment works across common business finance types.
- Which fees you might pay and how settlement figures are calculated.
- How to reduce or avoid charges through timing and negotiation.
- Practical steps to request a settlement and close an account smoothly.
Updated: October 2025
Part 2 of 5: How early repayment works by product type
Fixed-term business loans
Term loans often allow early repayment, but many apply an Early Repayment Charge or a minimum interest clause. An ERC can be a fixed fee, a percentage of the remaining balance, or a sliding scale that reduces over time. If your loan is on a fixed interest rate, lenders may also price in break costs to cover their funding or hedging.
Unsecured term loans tend to have clearer ERCs set out in the key features. Secured loans may include additional legal release costs if security needs to be discharged. Always ask whether interest will be rebated pro rata, the method of calculation, and any notice period.
Revolving credit, overdraft alternatives, and business credit cards
Revolving credit facilities typically let you repay early without penalty, with interest charged only on the days funds are drawn. Some facilities include non-utilisation fees or annual line fees that still apply even if you repay early. Business credit cards do not have settlement fees but may charge interest to the repayment date plus any existing annual fees.
Asset finance: hire purchase and finance lease
Hire Purchase agreements usually allow early settlement, with a rebate of future interest and a settlement figure that includes outstanding capital plus any fees. Finance leases may allow early termination subject to a termination value, calculated from remaining rentals, discounting, and fees. Check for option-to-purchase fees, documentation fees, and costs to release title or security.
Operating leases often have fixed terms, and early termination can be more expensive because rentals reflect depreciation and residual values. Request the termination value and understand whether asset condition, mileage, or excess wear-and-tear charges apply.
Invoice finance: factoring and invoice discounting
Invoice finance agreements are usually rolling facilities with a minimum term. Early termination can include an exit fee, a percentage of the facility limit, or charges for the remainder of a minimum term. You may also need to fund any shortfall between advances and collected debtor balances on exit.
Ask about notice periods (often 3 months), audit fees, and any trailing collections costs. If your sector is professional services, including law firms, see our guide to sector-specific terms on solicitors loans and finance.
Merchant cash advance
With a merchant cash advance, you repay via a percentage of card takings until a fixed total amount is cleared. Many providers allow early repayment, but because the cost is a fixed factor, paying early may not reduce the total amount owed. Some providers offer a small discount for lump-sum settlement; always request it in writing.
Government-backed schemes and specialist loans
Government-backed schemes, such as the Growth Guarantee Scheme, are delivered by accredited lenders with their own early repayment policies. Many permit early repayment without fees, but some apply standard lender charges. Always confirm scheme-specific rules before committing.
Part 3 of 5: Fees explained – what “settlement”, “exit”, and “break costs” mean
Common early repayment charges and terms
- Early Repayment Charge (ERC): A fee for repaying a fixed-term loan early; can be fixed, a percentage, or time-based.
- Break costs: Charges covering the lender’s cost to unwind funding or hedging on fixed-rate agreements.
- Minimum interest or make-whole: You pay interest up to a minimum period even if you repay sooner.
- Termination or exit fee: A set fee payable when closing a facility, common in asset and invoice finance.
- Admin and legal release costs: Documentation or security release fees, such as removing a charge from Companies House.
- Non-utilisation fee: Charged on unused portions of a revolving facility, regardless of repayment.
- Notice periods: Time you must give before settling; interest or fees may continue during notice.
How settlement figures are calculated
For amortising loans, lenders typically calculate the outstanding principal plus any accrued interest to the settlement date and then add relevant fees. For fixed-rate or hedged loans, they may add break costs based on market rates at the time of settlement. For asset and invoice finance, providers use agreed formulas to compute termination values or exit fees.
Always ask for the calculation method, including whether future interest is rebated on a Rule of 78, actuarial, or daily interest basis. Ensure you receive a final settlement figure in writing with a validity window and payment instructions. Check if partial overpayments reduce term or monthly cost and whether they incur any charge.
Simple example (illustrative only)
You have £80,000 outstanding on a fixed-term loan with 18 months left. The lender applies an ERC of 2% of the outstanding balance, plus accrued interest to the settlement date. Your indicative settlement would be £80,000 + interest to date + £1,600 ERC + any admin fee.
If the agreement contains a minimum interest clause, you might also owe a portion of the remaining interest. Always confirm the exact figure and assumptions before paying.
What to check before you repay early
- Is there an ERC, break cost, or minimum interest requirement?
- Are there notice periods or calendar cut-offs that change the price?
- Will security releases or asset return costs apply?
- Does the lender offer a partial settlement option without fees?
- Will early repayment affect eligibility for future credit lines?
Part 4 of 5: Ways to reduce or avoid early repayment costs
Negotiate before you sign
The best time to minimise early repayment costs is at the outset. Ask for no ERCs or a reducing scale that falls to zero after a set period. Compare providers’ early settlement clauses, not just the rate, and keep written confirmation of any concessions.
Request flexibility on partial overpayments without fees. Where possible, choose products designed for flexibility, such as revolving credit, rather than fixed-term loans. If a provider insists on an ERC, negotiate a cap or set events that permit fee-free repayment.
Tactics during the term
Time any full settlement for after a penalty step-down date if your ERC reduces over time. Ask your lender whether they will discount the ERC if you refinance with them or migrate to another product. For merchant cash advance, request a settlement discount policy in writing before paying early.
With invoice finance, plan exits around minimum terms and notice periods to avoid paying for unused months. For asset finance, check whether selling the asset and using proceeds is permitted, and whether that triggers lower charges.
Timing and cash flow planning
Always request a settlement figure with a clear validity date to avoid recalculation. Align settlement with your working capital cycle to preserve liquidity and avoid overdraft costs. Ensure tax implications are understood, particularly on asset disposals or interest rebates.
When refinancing is better than repaying
If ERCs are high, refinancing to a lower rate or more flexible facility may be more cost-effective than full settlement. Model the total cost of each path, including fees, interest, and cash flow impact. Our platform can introduce you to lenders or brokers who can compare options and explain early settlement differences clearly.
Part 5 of 5: Practical next steps, step-by-step process, and FAQs
Step-by-step: requesting and paying a settlement figure
- Review your agreement for early repayment terms, notice periods, and fee types.
- Contact your provider to request a written settlement figure and calculation method.
- Check the validity window and arrange funds in time to meet the deadline.
- Confirm any security release steps, asset return arrangements, and final interest accrual.
- Pay the settlement by the instructed method and keep evidence of transfer.
- Obtain written confirmation of closure and, where relevant, removal of charges at Companies House.
FAQs on early repayment and settlement costs
Do all UK business loans allow early repayment?
Most allow it, but not all. Some products, such as certain operating leases or fixed-rate loans with hedging, may be restrictive or more costly to settle. Always check before you sign.
Can I overpay instead of settling in full?
Many lenders allow partial overpayments, sometimes without fee. Ask whether overpayments shorten the term or reduce monthly instalments and whether any admin charges apply.
What is the Rule of 78 and does it apply to business loans?
The Rule of 78 allocates more interest to earlier periods and can reduce the interest rebate on early settlement. While more common historically in consumer credit, some business agreements still reference it, so clarify the rebate basis.
Are revolving facilities always penalty-free to repay?
They are typically flexible to repay at any time without an ERC. However, line fees, annual fees, or non-utilisation charges may still apply.
Will early repayment improve my creditworthiness?
Timely full repayment can reflect positively on credit behaviour, but lenders also value long-term relationship data. Keep a strong payment record and low utilisation to support future applications.
Key takeaways
- Early repayment is often allowed, but fees and methods vary widely by product.
- Ask for a written settlement figure and understand ERCs, break costs, and notice periods.
- Negotiate flexibility at the outset and time settlements around step-downs and minimum terms.
- Compare providers on early repayment terms as well as price to avoid surprises later.
How Best Business Loans can help
We do not provide loans or set fees. We help you find providers whose early repayment policies match your goals and cash flow plans.
Use our Quick Quote to get introduced to lenders or brokers who can outline early settlement terms upfront. There is no obligation, and it’s free to submit an enquiry.
Get your free Quick Quote or Decision in Principle now and compare options that prioritise flexibility and transparency.
Important information
Information on this page is for general guidance only and is not financial advice. Terms, eligibility, and fees are set by individual providers and can change; always read your agreement and seek independent advice if needed.
Best Business Loans acts as an independent introducer. We may receive a commission from providers we introduce you to, but you will not be charged by us for submitting a Quick Quote.
We support fair, clear, and not misleading financial promotions. Please ensure any finance you consider is suitable for your business and sustainable for your cash flow.