Redemption statement: what it means for business borrowing
A redemption statement is a document from a lender showing exactly how much it will take to repay a loan or mortgage in full on…
Business loans
Early repayment charge: what it means for business borrowing
Early repayment charge meaning: the fee a lender can charge if you repay a loan early. How ERCs are worked out, a UK example and what they mean for refinancing.
In this guide
An early repayment charge, or ERC, is a fee a lender can charge when you repay a loan, in full or in part, earlier than agreed. Not every business loan has one, so it is worth checking before you sign, especially if you might sell an asset, refinance or receive a large payment during the term.
How ERCs are worked out
- A percentage of the amount repaid, often stepping down each year (for example 3% in year one, 2% in year two).
- A number of months' interest on the amount repaid.
- Break costs on some fixed-rate loans, linked to how market rates have moved since you fixed.
- Interest for the full term on some short-term products, so repaying early saves nothing.
An example
A business has £180,000 left on a five-year secured loan with a 2% ERC in year three. Repaying in year three costs £3,600 on top of the balance. If refinancing saves 2% a year on £180,000 for the remaining two years, about £7,200 before fees, it is still worth doing; if the saving were smaller, the ERC could wipe it out.
What our panel shows
Our panel data flags 17 of the 303 loan and asset finance products on our panel (6%) as able to charge an early repayment fee (checked October 2026). Always check the lender's offer, which sets out the early repayment terms that apply to you.
£212,300A transaction we arrangedApproved, then nearly lost at completion. £212K consolidated.A property-title requirement threatened a consolidation deal at the last hurdle. We worked it through and kept the structure intact.How ERCs affect borrowing
An ERC matters most when you might repay early: property loans you expect to refinance, loans you plan to clear from a sale, or debt you will consolidate. Regulated consumer credit agreements (for example some loans to sole traders and small partnerships) follow statutory early settlement rules; most loans to limited companies are unregulated and follow the contract.
Your lender's redemption statement shows any ERC due. If you are weighing up a refinance, see refinancing business loans or business debt consolidation loans. We compare offers on total cost, including exit charges. Any broker fee depends on the lender, with nothing to pay upfront.
Related terms
Sources
This guide is general information, not financial advice. Lenders set their own criteria, rates and terms, and all finance is subject to status.
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FAQs
Common questions
Can I avoid an early repayment charge?
Choose a product without one, or time repayment for when the ERC period ends. Some lenders allow a set amount of overpayment each year free of charge. Ask before you sign; it is hard to negotiate away afterwards.
Is an early repayment charge tax deductible for a business?
Costs of business borrowing are generally treated as finance costs, but the treatment depends on the business and the loan. Ask your accountant.
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