Total cost over the expected term
Add establishment, interest, line fees, and third-party costs across the realistic loan period, rather than comparing the rate alone.
Private commercial loans usually carry a different mix of costs to a bank facility, and the headline interest rate rarely tells the whole story. This guide explains the common cost components and how to compare offers on a like-for-like basis.
Reader problem
Use this guide when you are considering property-backed finance for a business purpose and need to understand the conditions before applying. It is relevant to owners comparing a short-term loan, urgent settlement funding, a refinance bridge or a second mortgage.
Read the answer and document checklist alongside the actual lender terms. The available amount, costs and timing depend on the property, existing debt, borrower and repayment plan.
This guide addresses business-purpose funding. Personal borrowing requires a separate assessment.
Quick answer
Private lenders commonly charge for the loan in layers: an establishment component, interest over the term, and a range of third-party and legal costs, with further costs sometimes arising at exit. Because short terms compress these costs into a small window, the total can look very different from the rate on the term sheet.
Compare the total cost in dollars, the funds you actually receive at settlement, and the amount needed to repay the loan. Ask for a written breakdown for both the planned exit date and a delayed exit. For the broader application process, see private lending for property-backed business purposes.
Fee structures vary between lenders and deals, so any comparison should be based on the actual term sheet rather than assumptions.
Scenario next step
Have the amount, business purpose, property details, existing debt, deadline and repayment plan ready. If timing is urgent, call to discuss whether the required steps can be completed.
What to do next
Write down the net funds your business needs, the deadline, property details, existing secured debt and the planned repayment date. Distinguish documents you already have from estimates or approvals still to be obtained.
Use the private lending service guide to review the application steps, then discuss the costs, conditions and repayment plan with a broker before accepting an offer.
An initial assessment or indicative term sheet does not guarantee lender approval or settlement.
What this means
Establishment fees generally compensate the lender for assessing, documenting, and settling the loan. Interest is the ongoing charge for the funds, and on private loans it is often structured differently from a bank loan, for example with interest capitalised or pre-paid from the facility. Line or holding fees may apply to the approved limit, whether or not it is fully drawn.
Separately, the borrower commonly pays the lender's legal costs and the valuer's fee, and may also carry their own legal and broker-related costs. These are often required before an approval can proceed, which is why they matter for cash planning early in the process.
Why lenders care
Private lenders often fund quickly, over short terms, and against scenarios a bank may not accommodate. That speed, flexibility, and risk appetite is typically reflected in pricing, and fees that are earned up front reflect the effort concentrated at the start of a short loan.
The structure also tells the lender how the borrower intends to exit. A borrower who pays interest monthly is showing a different cash flow position to one whose interest is capitalised, and lenders will consider which structure suits the security, the term, and the exit plan.
What lenders usually assess
Two offers with similar interest rates can produce very different total costs. A fair comparison lines up the same assumptions across each one.
Add establishment, interest, line fees, and third-party costs across the realistic loan period, rather than comparing the rate alone.
Check whether interest is serviced, capitalised, or pre-paid, since this changes both the cash needed during the term and the amount owing at exit.
Ask what applies if settlement of the exit slips, including any extension fee, default rate, or additional charges.
Confirm whether interest or fees are still payable for a minimum period if the loan is repaid sooner than planned.
Work out how much of the facility is actually available for the purpose once fees and interest are taken from it.
A clear side-by-side of the same scenario across lenders usually shows which offer genuinely costs less, and which simply looks cheaper on one line.
Balmoral broker view
Balmoral's broker review considers the amount available after costs, the required settlement date, the security and the repayment plan together. A lower quoted rate may still produce a higher total cost once fees, minimum interest or an extension are included.
Ask whether another funding option could meet the business need within the available time. If a private facility is proposed, check what must be completed before settlement and what must happen before maturity.
The lender makes the credit decision. Obtain independent legal advice on the loan, mortgage and any guarantee documents.
Common scenarios
Illustration only, not a Balmoral quote, lender offer or indication of available rates. Assume a $500,000 principal repaid in full after six months, 12% annual simple interest paid monthly, a 2% establishment fee, $3,000 legal costs, $1,500 valuation costs and a $500 discharge fee. For this example, no other fees apply and the principal stays at $500,000.
$500,000 × 12% × 6/12 = $30,000. On these assumptions, the borrower pays $5,000 interest each month. This example does not capitalise interest or charge interest on interest.
Establishment is $500,000 × 2% = $10,000. Add $3,000 legal, $1,500 valuation and $500 discharge costs: $15,000 in total. With $30,000 interest, the total borrowing cost is $45,000, excluding repayment of principal.
If establishment, legal and valuation costs are deducted from the advance, $500,000 − $10,000 − $3,000 − $1,500 leaves $485,500 available for the business purpose. The principal still owing is $500,000. Monthly interest and the discharge fee are paid separately in this example.
If an extension were agreed at the same rate and principal, $500,000 × 12% × 2/12 adds $10,000 interest. Total borrowing cost becomes $55,000 before any extension, default or additional legal charges. An extension and unchanged pricing are not guaranteed.
Actual term sheets may include minimum interest periods, line fees, broker fees, retained interest, different calculation methods and other charges. Replace every assumption with the written terms offered, and check that the net advance covers the required payout or purchase. Use the private lending cost calculator to explore your own amount, fees and delay assumptions; its result is an illustration, not a quote.
When this may work
Higher-cost private funding is more likely to make commercial sense when there is a defined purpose, a clear and time-limited exit, and a real cost to missing the opportunity or deadline that the funding addresses.
It tends to make less sense when the plan relies on an open-ended timeline, when the exit is uncertain, or when a cheaper solution is available in the time the borrower actually has.
A workable private loan is one where the borrower has weighed the total cost against the value of acting quickly.
Documents usually needed
Cost quotes are only as reliable as the information behind them. Having the basics ready helps a lender or broker provide a more accurate estimate of the fees and interest structure that is likely to apply.
It also reduces the chance of the costs changing late in the process because of information that emerged after the initial indication.
Strengthen the file
Put the requested amount and business purpose beside the property value, existing debt and available equity. Include the deadline and supporting documents so the broker can identify any valuation, payout or legal work still required.
Set out the repayment source and expected date, with evidence and a fallback if the timing changes. Ask for written confirmation of fees, the net advance, ongoing payments and the amount due at maturity.
Better preparation improves the quality of the lender conversation. It does not remove the need for lender assessment, legal review, tax advice, or independent professional advice where those issues apply.
Mistakes to avoid
These issues appear across live borrower and referrer conversations, especially when timing is tight or the first lender path is unclear.
Ask for the net advance after fees, existing debt payouts and any retained interest. Confirm it covers the actual funding need.
Check every condition still outstanding, including valuation, legal documents, identity checks, consents and discharge arrangements.
Test the future lender's requirements and the expected debt balance. A planned refinance remains subject to approval.
Review sale or refinance progress during the term. Raise a likely delay early and check the contract's extension and default provisions.
A cleaner first submission can protect time, reduce avoidable lender declines, and make the next conversation more specific.
Lender channel fit
Compare options against the same amount, deadline and repayment plan. The most suitable structure depends on the whole transaction.
Consider whether a longer-term commercial facility can meet the required date and documentation needs. Compare its total cost and repayment obligations with the proposed private loan.
A property-backed private facility may be considered for a defined business purpose where the security, timing and repayment plan fit the lender's requirements. Compare fees and exit obligations before proceeding.
Check the combined cost of keeping the first loan and adding a second mortgage against replacing the existing debt. Existing lender consents, payout costs and remaining equity can affect the choice.
This is why Balmoral focuses on lender-fit diagnosis first, then pricing, structure, and submission strategy once the likely channel is clear.
Discuss the terms with a broker
Technology can organise the scenario quickly, but reading a term sheet and understanding how fees, interest, and exit costs interact is a judgement call. That is where broker review matters.
Balmoral reviews private lending scenarios with the total cost and the exit in mind, helping the borrower understand what they would be agreeing to before they proceed.
FAQ
Commonly an establishment fee, interest, and sometimes line or holding fees, alongside legal and valuation costs. The exact mix varies by lender and by transaction.
Not on its own. Fees, how interest is charged, the loan term, and exit costs can change the total materially, so comparing the overall cost over the expected term is more reliable.
It generally means interest is added to the loan balance rather than paid monthly, which reduces cash flow pressure during the term but increases the amount owing at exit.
Not necessarily. Establishment fees, legal and valuation costs, or retained interest may be deducted from the advance. Ask for the net amount available at settlement, the full principal owing, and a list of costs payable separately before accepting the facility.
Interest may continue and extension, default or additional legal charges may apply under the loan documents. Ask for a delayed-exit cost calculation before signing. An extension requires the lender's agreement; it should not be assumed.
These are commonly paid by the borrower, and are often required before approval proceeds, though arrangements vary by lender and should be confirmed in the term sheet.
Ready to discuss the scenario?
Send the net amount you need, property details, current debt, required term and repayment plan. If you already have a term sheet, include the fee schedule so a broker can compare the total cost and funds available at settlement.
Disclaimer
Finance is subject to lender approval. Terms, fees, rates and eligibility vary by lender and borrower circumstances. AI-supported lender matching does not guarantee approval. Balmoral reviews scenarios through a commercial finance broker before recommending a funding pathway.