Why negotiating fees matters

Loan origination fees and closing costs are upfront dollars that reduce the working capital you receive and increase your effective cost of borrowing. Even a single-point reduction on a $250,000 loan (1% = $2,500) can be redirected into payroll, inventory, or marketing. Negotiation is not always about getting fees to zero — it’s about lowering the total cash outlay, adjusting how fees are charged, and comparing true loan cost across competing offers.

(Official consumer guidance recommends shopping and comparing loan offers before committing—see the Consumer Financial Protection Bureau and Small Business Administration.)

What fees are commonly negotiable — and which aren’t

  • Origination fee (processing or underwriter fee): Often negotiable, especially with strong financials or competing offers.
  • Broker or arrangement fees: Frequently negotiable; ask the broker to reduce or explain services covered.
  • Some third‑party costs (appraisal, survey, title search): These can often be shopped among vendors; lenders may accept alternate providers.
  • Document and administrative fees: Small but negotiable — request itemized breakdowns.

Non-negotiable or limited-negotiability items:

  • Government or statutory fees (SBA guarantee fees, certain filing fees): Set by government programs and typically non-negotiable (SBA guidance: fees are standardized).
  • Third‑party fees that are prepaid to independent vendors if the vendor will not reduce charges.

How lenders set origination fees (brief)

Origination fees compensate lenders for underwriting, credit review, and processing. They may be expressed as a percentage of the loan or a flat fee. Pricing depends on borrower credit, industry risk, loan term, collateral, and market competition.

Step-by-step negotiation checklist

  1. Get the loan estimate in writing: Ask for a detailed, itemized estimate showing origination, broker, third‑party, and legal fees.
  2. Shop at least 2–3 lenders: Compare total costs, effective APR, and whether fees can be rolled into the loan. Competitive quotes are strong leverage.
  3. Prepare supporting documents: recent financial statements, tax returns, accounts receivable aging, personal credit report, and a one-page loan-use memo.
  4. Identify negotiable items: circle fees that the lender controls (origination, broker, admin) vs. third‑party charges.
  5. Present a counteroffer: propose a lower percentage, a cap on fees, or ask for fee waivers in exchange for an earlier close, larger deposit, or a slightly higher rate.
  6. Evaluate tradeoffs: compare a fee reduction vs. a rate reduction using break‑even analysis (see example below).
  7. Get agreed changes in writing before signing.

Scripts and negotiation phrases you can use

  • Email to lender: “Thank you for the offer. I have competing offers with lower origination charges. Would you consider reducing the origination fee from X% to Y% or waiving the broker fee in exchange for a commitment by [date]?”
  • Phone: “Can you show me which line items in this closing estimate are bank-controlled vs. third-party? If we choose our own appraiser or attorney, will you accept that to reduce costs?”
  • Tradeoff request: “If you remove the $X origination fee, I can accept a rate increase of Y bps. Which saves more over the term?”

Example comparison (decision math)

Scenario: $200,000, 5‑year term.

  • Offer A: 4% origination fee ($8,000) + 7.0% interest
  • Offer B: 2% origination fee ($4,000) + 7.25% interest
    Which is cheaper depends on your time horizon. Compute monthly payment and total interest over 5 years, then add upfront fees to compare total cost. Use net present value for accuracy if you expect to refinance early.

Quick rule: if you plan to keep the loan short-term, prioritize lower fees. If long-term, a lower rate may be worth paying modest fees.

Documents and evidence that improve negotiation outcomes

  • Recent profit & loss and balance sheet (30–90 days) showing positive cash flow.
  • Bank statements demonstrating reserve balances or good receivables.
  • Business plan or one-page projection showing how loan proceeds will grow revenue.
  • Competitive written offers from other lenders.
  • Personal and business credit scores.

When to ask for fee roll‑ins or credits

  • Roll‑in: If cash at close is tight, ask the lender to add fees to the loan principal. That increases your financed balance and interest cost but preserves cash.
  • Credit at close: Ask the lender to pay certain third‑party fees and reimburse them via a slightly higher rate or later charge.

Specific lender types — negotiation expectations

  • Community banks: May be flexible if you have a relationship and strong collateral.
  • Regional banks: Moderate flexibility; competing offers help.
  • Online lenders/marketplaces: Often transparent on fees; some offer lower origination but higher rates.
  • SBA loans: SBA guarantee fees and some closing costs are set by the program and typically not negotiable; however, lenders may waive their internal origination or packaging fees in some cases (see SBA fee schedule for details).

Tax treatment basics (as of 2025)

Loan origination fees for a business are generally treated as a business cost and are commonly amortized over the life of the loan for tax purposes rather than deducted fully in the year paid. The IRS treats loan costs and deferred financing fees under business expense and amortization rules — see IRS Publication 535 for guidance and consult a tax advisor for your situation (IRS Publication 535: Business Expenses).

Common negotiation mistakes and how to avoid them

  • Mistake: Focusing only on the lowest advertised rate. Fix: Compare total cost (fees + interest) and APR.
  • Mistake: Not asking for itemized fees. Fix: Insist on an itemized estimate before signing.
  • Mistake: Failing to leverage competing offers. Fix: Always shop and present written quotes.
  • Mistake: Ignoring government-set fees. Fix: Confirm which fees are non-negotiable (SBA or statutory fees).

Example real-world outcomes

  • Small manufacturing client: negotiated origination from 3.5% to 1.5% on a $150,000 equipment loan by providing audited financials and a competing quote — saving $3,000 upfront.
  • Service business client: accepted higher rate but got the lender to absorb third‑party appraisal and UCC filing fees, preserving $2,200 cash at close and smoothing the borrower’s launch.

When not to push hard

If a lender’s overall package (rate, flexibility, covenants, service) is materially better and fee reductions would only move a small percentage of total cost, aggressive negotiation can damage rapport. Prioritize long-term service and relationship when that outweighs a modest fee reduction.

How to compare offers properly

  • Ask for a full fee schedule and an itemized closing statement.
  • Calculate APR and total cost over the time you expect to hold the loan.
  • Use a simple spreadsheet: principal, interest rate, term, upfront fees, and monthly payment; then add fees to total cost.
  • Consider intangibles: speed, lender familiarity with your industry, prepayment penalties, and covenant flexibility.

Resources and further reading

Authoritative references: Consumer Financial Protection Bureau (consumerfinance.gov) for shopping and comparing loans, Small Business Administration (sba.gov) for SBA fee schedules, and IRS Publication 535 for tax treatment of loan costs. This article is educational and not tax or legal advice. Consult a qualified accountant or attorney before making loan decisions.

Disclaimer: The information above is for educational purposes only and does not substitute for individualized financial advice. Terms and regulations change; verify the latest program fees and tax guidance with official sources and your advisor.