Are there early settlement fees on business loans?

Many providers charge early repayment or settlement fees on fixed-sum loans, and some apply minimum interest clauses. Asset finance may offer an interest rebate but can still include admin or termination fees. Invoice finance often has notice and exit charges. Check your agreement for exact terms.

How do I know if early repayment will save me money?

Compare the interest you would pay to term against the total early settlement fees and any non-refundable charges. If the avoided interest exceeds fees, early repayment may save money. Request a binding settlement quote and review it with your accountant if needed.

Can I partially overpay a business loan without fees?

Some lenders allow fee-free overpayments that reduce interest and term, while others cap or schedule overpayments or apply charges. Confirm in writing how your lender applies partial prepayments and whether they reduce instalments or shorten the term.

Will early repayment affect my business credit score?

Settling a facility early is not typically negative. Ensure the lender records the account as settled with no arrears. If you rely on ongoing credit, consider whether closing a facility reduces available limits you might need later.

Can I repay a business loan early and are there early settlement fees?

Q: Can I repay a business loan early?

Yes. Most UK business loans allow early repayment, either in full or part. However, lenders may charge an early settlement fee, apply a minimum interest clause, or add break costs. Always request a formal settlement figure and fee breakdown before deciding.

Q: Do government-backed loans charge early repayment fees?

BBLS allowed fee-free early repayment, and many CBILS loans allowed early repayment without ERCs, but terms varied. The Growth Guarantee Scheme (GGS) may allow fee-free prepayment, but always confirm with the lender as other fees may still apply.

Updated October 2025 • UK guidance from Best Business Loans Editorial Team

The short answer: yes, most business loans can be repaid early, but fees may apply

In the UK, most business loan and finance agreements allow early repayment, either in full or in part. However, many providers charge an early settlement fee, apply a minimum interest clause, or add “break costs” to reflect their funding and risk. Whether it’s beneficial depends on your contract and the interest you’d avoid versus any fees.

Early repayment can save money, reduce debt, and free up cash flow in the long term. But it can also trigger charges that offset some or all of the interest savings. Always request a formal settlement figure before deciding.

What “early repayment” means for UK businesses

Early repayment is paying off your outstanding balance before the agreed end date. It may be a full settlement or a partial overpayment that reduces term or monthly payments. Terms differ across finance types, so check your specific agreement.

Fixed-sum term loans: often allowed, sometimes with early repayment charges (ERCs).
Asset finance and hire purchase: typically permitted, with an interest rebate and possible fees.
Invoice finance: often on rolling contracts with notice periods and exit fees.
Merchant cash advance: less common to settle early, as repayments track card takings.
Overdrafts and credit lines: can usually be repaid and closed without ERCs.

Best Business Loans does not supply loans directly. We guide you to suitable lenders or brokers and help you compare your early repayment options.

How early settlement fees work across common finance types

Term loans (fixed or variable)

With fixed-rate term loans, lenders may charge an ERC, a percentage of the outstanding balance, or a minimum interest clause. With variable or base-rate linked loans, break costs are less common, but admin fees may still apply.

Some unsecured loans include a “12-month minimum interest” or similar. This means settling within that window could still incur interest for the minimum period.

Asset finance and hire purchase

Hire purchase typically permits early settlement with a statutory-like approach to interest rebates in many agreements. You may receive an allowance for future interest you no longer owe and pay a modest fee for administration.

Finance leases can be more complex, often involving all remaining rentals less a discount for early payment, plus an early termination fee. Your agreement’s “termination” and “rebate” clauses are key.

Invoice finance (factoring and discounting)

Invoice finance is usually a service contract with notice periods, rather than a single loan. Early exit can incur notice fees, collection run-off fees, and minimum charge clauses if you terminate early.

If your facility has a minimum annual fee or expected volume, settling early might still leave a shortfall to pay. Request a pro-rata breakdown from your provider.

Merchant cash advances

Repayments are a percentage of card sales until a fixed “factor” is repaid, not interest over time. Some providers let you “buy out” the remaining amount early, but discounts are not guaranteed.

Check whether your provider offers a settlement discount if you repay in one lump sum. Policies vary widely.

Overdrafts and revolving credit

Revolving facilities can usually be repaid and closed without ERCs, but arrangement or annual fees are non-refundable sunk costs. If you close mid-cycle, you might still owe a proportionate monthly or annual fee.

Double-check any minimum commitment period tied to preferential pricing. The lender may charge a fee if you exit early.

Typical fee names you may see

Early repayment charge (ERC) or early settlement fee
Break cost or interest rate differential charge
Minimum interest or minimum term charge
Admin, legal, or documentation fees
Notice period or early exit fees (for service-based facilities)

How to calculate whether early repayment saves money

A quick way to compare costs

Step 1: Ask your provider for a formal early settlement figure and a written fee breakdown. Step 2: Estimate the interest you would pay if you continue to term. Step 3: Compare the projected interest with the settlement fees and any non-refundable charges.

The core question is simple: will the interest you avoid exceed the total fees and charges to settle now. If yes, early repayment may save money and reduce risk. If no, consider partial overpayments or waiting until the fee reduces.

Worked example (illustrative only)

Outstanding balance: £100,000 at 12% fixed, 24 months remaining. Estimated future interest without early repayment: roughly £12,000–£13,000 depending on amortisation. Quoted ERC: 3% of outstanding (£3,000) plus £150 admin.

Potential saving: roughly £12,000–£13,000 in avoided interest minus about £3,150 in fees. Net saving could be around £8,850–£9,850 if paid today. Your figures will differ, so always use the lender’s official quote.

Steps to request an early settlement figure

Check your agreement’s prepayment and settlement clauses first.
Ask for a binding settlement quote valid for a stated period.
Request a breakdown of principal, interest rebate, and each fee.
Confirm how partial overpayments are treated and whether they reduce term or instalments.
If relevant, ask whether fees reduce after a certain date and diarise that point.

Partial prepayments and overpayments

Some lenders let you overpay without any fee, reducing interest and shortening the term. Others allow overpayments only on payment dates or cap the amount per period. Clarify in writing how partial prepayments will be applied.

If your loan has a minimum interest clause, partial prepayment might not reduce costs until after the minimum period. This is crucial for short-term loans with heavy front-loaded charges.

Practical considerations, risks, FAQs, and alternatives

Cash flow, covenants, and credit profile

Repaying early improves gearing and can lower monthly outgoings, strengthening resilience. But ensure the lump sum does not harm working capital for essentials like wages, VAT, or stock. A settled account should not harm your business credit score, but check the provider’s reporting approach.

If you have covenants linked to debt levels or liquidity, confirm that early repayment will not inadvertently breach them. Ask your accountant or finance lead to review the impact on cash flow forecasts.

Negotiating fees and timing

Some lenders will negotiate ERCs, especially near the end of term or if you refinance with the same group. Timing can matter, as fees sometimes reduce after anniversaries or notice periods. Ask whether waiting one or two months changes the cost materially.

If you plan to refinance, compare like-for-like APRs, fees, and covenants. Consider whether flexibility, such as free overpayments, is worth a slightly higher headline rate.

Frequently asked questions

Do government-backed loans charge early repayment fees? The Bounce Back Loan Scheme (BBLS) allowed fee-free early repayment, and many CBILS loans allowed it without ERCs, but terms varied by lender. The current Growth Guarantee Scheme (GGS) may allow fee-free prepayment, but confirm with the lender as other fees can still apply.

Will early repayment affect my credit score? Settling a loan early is not usually negative, and a well-managed account can be positive. Always ensure the settlement is processed correctly and shown as settled with no arrears.

Can I repay an asset finance agreement early? Yes, most hire purchase and lease agreements allow early termination or settlement. You’ll often receive an interest rebate and pay a fee, or pay discounted future rentals plus a fee.

What if I’m on invoice finance and want to exit? You’ll usually give notice, repay any advances, and settle exit and service fees. Ask for a complete run-off plan to manage debtor collections and charges.

Is it better to overpay or settle in full? Overpaying can reduce interest without triggering larger ERCs, where permitted. Full settlement delivers the cleanest outcome but must be costed carefully.

Alternatives to full settlement

Partial overpayments to shorten the term without a full ERC.
Refinancing to a lower-cost facility with better flexibility.
Switching from fixed to revolving credit for seasonal needs.
Exploring sector-fit products such as asset or invoice finance.

If you’re an SME reviewing options, explore our guidance on small business loans to understand typical structures and terms. Then compare across lenders for early repayment flexibility.

How Best Business Loans can help you decide your next step

What we do — and what we don’t

Best Business Loans does not lend money or offer financial advice. We use AI-driven matching and a trusted UK network to introduce you to suitable lenders or brokers. Our goal is to help you compare early repayment flexibility, overall costs, and service quality before you commit.

When you complete a Quick Quote, we match your profile and funding purpose to providers who are active in your sector. You stay in control and decide if you want to proceed. There’s no obligation to accept any offer.

What to have ready for a Quick Quote

Latest filed accounts and recent management information.
Business bank statements (usually three to six months).
Details of existing finance and any early repayment clauses.
Purpose of funding, amount required, and preferred term.
Any seasonal patterns or contract pipeline that affects cash flow.

Clear documentation helps providers give you accurate settlement and refinancing options. It also speeds up decisions and reduces back-and-forth.

How we help you weigh early repayment vs. alternatives

We encourage a “total cost of finance” comparison, including interest avoided, ERCs, and non-refundable fees. We also ask providers about partial overpayment rules and flexibility. You can then choose the route that best balances cost and control.

If early settlement is not optimal, we’ll help you find options that permit overpayments or shorter terms. If it is optimal, we’ll help you coordinate timelines and provider requirements to execute cleanly.

Key takeaways

Yes, you can usually repay a business loan early in the UK.
Early settlement fees, minimum interest, or break costs may apply.
Savings depend on avoided interest minus any fees and charges.
Terms vary by product: term loans, asset finance, invoice finance, and MCAs differ.
Request a formal settlement figure and compare before acting.

Ready to explore your options? Submit a Quick Quote on BestBusinessLoans.ai for a no-obligation eligibility check and introductions to suitable UK providers. It’s fast, secure, and free to enquire.

Important information

Information on this page is for general guidance only and is not financial, legal, tax, or accounting advice. Early repayment policies vary by provider and contract, and eligibility depends on your circumstances.

Best Business Loans is an independent introducer, not a lender. Any finance arrangements are between you and the provider, and you should read all terms before committing.

We aim to ensure content is clear, fair and not misleading, consistent with FCA and ASA principles. Always confirm final terms, fees, and regulatory status with the provider.