What is an arrangement fee in a facility agreement?

An arrangement fee is a fee charged by the lender for setting up the facility. It may be payable on signing, on first drawdown, or in instalments as stated in the agreement.

Who pays the legal costs in a UK facility agreement?

The borrower often pays the lender’s reasonable legal costs, valuation fees, security registration costs, and enforcement costs. The agreement should state what costs are recoverable and when they are payable.

What are break costs in a facility agreement?

Break costs may apply if the borrower repays early or changes an interest period, especially where the lender incurs funding losses. The agreement should define when break costs are payable.

Can a borrower repay a facility early?

Yes. If the agreement allows early repayment, it may also include conditions such as notice requirements, minimum repayment amounts, break costs, or prepayment fees.

What is the difference between fixed and variable interest in a facility agreement?

A fixed rate stays the same for the agreed period. A variable rate changes by reference to a benchmark or lender rate, often plus a margin.

What does margin mean in a loan facility agreement?

A margin is the lender’s additional percentage added to the base or benchmark rate. It reflects the lender’s pricing, risk assessment, and commercial terms.

How are tax deductions dealt with in a UK facility agreement?

Facility agreements often include a gross-up clause requiring payments to be made without tax deductions, or requiring the borrower to increase payments if withholding tax applies.

Are late payment fees enforceable in UK facility agreements?

Late payment clauses should be clear, proportionate, and commercially justified. Excessive penalties may be challenged, so default interest and fees should be drafted carefully.

When is interest paid under a facility agreement?

The agreement should specify when interest is payable, such as monthly, quarterly, at the end of each interest period, or on repayment of the facility.

Can a facility agreement require the borrower to pay lender losses?

Yes. A facility agreement can include indemnities requiring the borrower to reimburse the lender for specified losses, costs, liabilities, and expenses connected with the facility.

How can I create a UK facility agreement with clear interest and fee terms?

Use a clear facility agreement template that defines the interest rate, fees, payment dates, default interest, costs, tax provisions, and repayment terms. You can generate a tailored UK facility agreement from our main line of credit agreement page.

EN-GB>Finance>Facility Agreement>Interest Fees and Costs in UK Facility Agreements

Interest Fees And Costs In UK Facility Agreements

Created: 9 Jun 2026

This article explains key interest, fee and cost provisions in UK facility agreements, helping readers assess borrowing terms, risks and obligations. It is part of the AI Generated British Facility Agreement category.

Cost Type	Calculation Basis	Payment Timing	Paying Party	Practical Note
SONIA-linked interest
Interest	Compounded SONIA plus margin over each interest period.	Periodic	Borrower.	Standard for many sterling floating-rate facilities needs clear observation shift and lookback mechanics.
Bank Rate linked interest
Interest	Bank of England Bank Rate plus margin.	Periodic	Borrower.	Simpler than compounded SONIA but may be less common for larger corporate loans.
Fixed rate interest
Interest	Fixed annual percentage on outstanding principal.	Periodic	Borrower.	Gives certainty but may include break costs if repaid early.
Interest margin
Interest	Agreed percentage added to benchmark or base rate.	Periodic	Borrower.	Main pricing lever may step up or down by leverage or credit rating.
Margin ratchet adjustment
Interest	Margin changes by leverage, loan-to-value or performance thresholds.	Periodic	Borrower.	Can reward deleveraging but increases cost if covenants deteriorate.
Interest rate floor
Interest	Benchmark deemed not less than agreed floor, often zero.	Periodic	Borrower.	Protects lender yield borrower may not benefit fully from falling rates.
Default interest
Default interest	Normal interest plus default margin on overdue amounts.	On default	Defaulting borrower or obligor.	Must be commercially justifiable to reduce penalty risk.
Capitalised default interest
Default interest	Unpaid default interest added to principal at agreed intervals.	On default	Defaulting borrower or obligor.	Can rapidly increase debt compounding periods should be explicit.
Arrangement fee
Arrangement fee	Fixed amount or percentage of total commitments.	Upfront	Borrower.	Often non-refundable and payable whether or not the facility is fully drawn.
Upfront fee
Arrangement fee	Percentage of each lender's commitment or fixed fee letter amount.	Upfront	Borrower.	May be documented in a confidential fee letter rather than the facility agreement.
Commitment fee
Commitment fee	Percentage of undrawn available commitments accruing daily.	Periodic	Borrower.	Charges for committed but unused credit affects revolving facilities significantly.
Ticking fee
Commitment fee	Percentage of commitments accruing before first drawdown or closing.	Periodic	Borrower.	Compensates lenders for reserving funds during delayed completion periods.
Utilisation fee
Utilisation fee	Percentage of drawn amount, often increasing with utilisation level.	Periodic	Borrower.	Discourages high usage of revolving credit lines.
Drawdown fee
Other	Fixed fee or percentage charged per utilisation request.	On each utilisation	Borrower.	Can make frequent small drawings inefficient.
Rollover fee
Other	Fixed amount per rollover or renewal of a loan period.	On each utilisation	Borrower.	Relevant where short interest periods are repeatedly renewed.
Agent fee
Other	Annual fixed fee under agency or fee letter.	Periodic	Borrower.	Common in syndicated facilities for administering lender communications and payments.
Security agent fee
Other	Annual fixed fee or fee letter amount.	Periodic	Borrower or chargor group.	Relevant where security is held on trust for multiple finance parties.
Agent expenses
Other	Properly incurred out-of-pocket expenses plus VAT if applicable.	On demand	Borrower.	Borrower should require reasonable evidence and scope limits.
Lender legal fees
Legal cost	Reasonable legal costs incurred in negotiation and completion.	Upfront	Borrower.	Often capped for initial documentation but uncapped for enforcement.
Amendment legal fees
Legal cost	Reasonable costs for waivers, consents or amendments.	On demand	Borrower requesting change.	Small covenant or timing changes can still trigger lender counsel costs.
Enforcement legal costs
Legal cost	Costs of enforcing finance documents after default.	On default	Defaulting borrower, guarantor or security provider.	Usually broad and may include court, insolvency and receiver costs.
Break costs
Break cost	Lender loss from repayment before interest period end.	On early repayment	Borrower making early repayment.	Most relevant for fixed-rate or term benchmark funding.
Prepayment fee
Other	Percentage of amount prepaid or declining fee schedule.	On early repayment	Borrower.	Can restrict refinancing flexibility distinguish from break costs.
Make-whole amount
Break cost	Discounted value of lost future interest or yield.	On early repayment	Borrower.	Can be substantial in private credit and fixed-yield loans.
Commitment cancellation fee
Commitment fee	Fee on cancelled undrawn commitments.	On early repayment	Borrower cancelling commitment.	May apply where lenders reserved capacity for a minimum period.
Extension fee
Other	Fixed amount or percentage of extended commitments.	Other	Borrower requesting extension.	Often payable when maturity or availability period is extended.
Waiver fee
Other	Fixed fee or percentage agreed for covenant waiver.	On demand	Borrower or relevant obligor.	Can be a hidden cost of covenant pressure or late reporting.
Consent fee
Other	Fee payable for lender consent to restricted action.	On demand	Borrower seeking consent.	May apply to acquisitions, disposals, dividends or debt changes.
Valuation costs
Other	Valuer fees for initial and updated asset valuations.	Upfront	Borrower or security provider.	Important for real estate, asset finance and borrowing base facilities.
Revaluation costs
Other	Costs of periodic or event-driven collateral revaluations.	Periodic	Borrower or security provider.	Can be triggered by covenant breaches or market value concerns.
Due diligence costs
Other	Accountant, tax, commercial or technical adviser costs.	Upfront	Borrower or sponsor.	Common in acquisition, project and leveraged finance transactions.
Monitoring costs
Other	Costs of lender-appointed monitoring accountant or adviser.	Periodic	Borrower.	Usually negotiated to apply after default or financial underperformance.
Borrowing base audit costs
Other	Field exam or audit costs for receivables and inventory.	Periodic	Borrower.	Key cost in asset-based lending frequency should be capped if no default.
Security registration fees
Other	Companies House or registry fees for registering security.	Upfront	Chargor or borrower.	UK company charges generally require timely registration to protect security priority.
Land Registry fees
Other	Prescribed fee for registering legal charge or land transaction.	Upfront	Borrower or property owner.	Relevant for real estate security and may affect completion funds flow.
IP security registration costs
Other	IPO filing fees and adviser costs for registered IP security.	Upfront	Borrower or IP owner.	Important where patents, trade marks or designs are key collateral.
Special asset registry fees
Other	Registry and professional fees for ships, aircraft or specialist assets.	Upfront	Borrower or asset owner.	Asset-specific registration can be critical to lender security perfection.
Stamp taxes on transfers
Other	Statutory tax if loan security or enforcement involves chargeable transfers.	Other	Usually borrower under tax indemnity if finance-related.	Usually not charged on simple loan advances but may arise on share transfers.
SDLT funding tax costs
Other	Statutory land transaction tax where relevant property transfers occur.	Other	Buyer or borrower under transaction documents.	Facility funding should account for SDLT where proceeds finance land acquisition.
VAT on fees and costs
Other	VAT added to taxable services at applicable rate.	On demand	Borrower if costs clause is VAT-inclusive or reimbursable.	Interest is generally exempt, but legal and adviser fees may carry VAT.
UK withholding tax gross-up
Other	Additional amount so lender receives net scheduled payment.	On demand	Borrower unless exemption or treaty process applies.	Critical for cross-border lending qualifying lender status should be checked.
Tax indemnity payment
Other	Indemnifies finance party for tax cost from finance documents.	On demand	Borrower or obligors.	Borrowers negotiate exclusions for lender taxes and avoidable tax costs.
FATCA deduction cost
Other	Gross-up or indemnity for FATCA-related withholding if agreed.	On demand	Allocated by FATCA clause often borrower only in limited cases.	Parties should align drafting with lender status and information obligations.
Increased costs
Other	Additional regulatory or capital cost attributable to the facility.	On demand	Borrower, subject to exclusions.	Borrowers often seek exclusions for known rules and lender-specific costs.
Capital adequacy cost
Other	Cost from regulatory capital or liquidity requirements.	On demand	Borrower if covered by increased costs clause.	May arise from banking regulation changes affecting lender economics.
Market disruption cost
Interest	Alternative funding cost if benchmark does not reflect lender cost.	Periodic	Borrower.	Should have objective triggers and lender certification requirements.
Benchmark replacement adjustment
Interest	Spread or adjustment applied when benchmark changes.	Periodic	Borrower through adjusted interest rate.	Fallback wording reduces uncertainty after LIBOR transition or benchmark cessation.
Late payment administration fee
Default interest	Fixed fee for missed or late payment processing.	On default	Borrower in payment default.	Should reflect administration cost and not duplicate default interest unfairly.
Returned payment fee
Other	Fixed fee for rejected direct debit, CHAPS or transfer.	On default	Borrower.	Operational fee should be proportionate and clearly stated.
Payment transfer fees
Other	Bank charges for CHAPS, SWIFT or other transfers.	On each utilisation	Borrower or party initiating transfer.	Small but relevant for multi-currency or frequent drawdown facilities.
Currency conversion cost
Other	FX spread, conversion charge or loss on currency mismatch.	On each utilisation	Borrower requiring non-sterling funds.	Important where sterling borrower draws or repays in another currency.
Currency indemnity
Other	Indemnity for shortfall after judgment or payment currency conversion.	On demand	Borrower or obligor.	Protects lender if recovered currency differs from facility currency.
Funding loss indemnity
Break cost	Lender loss from failed drawdown, late payment or early repayment.	On demand	Borrower causing loss.	Covers costs even where no loan is ultimately advanced.
Failed utilisation costs
Break cost	Costs incurred after borrower cancels or fails conditions for drawdown.	On each utilisation	Borrower requesting utilisation.	Borrower should avoid submitting drawdown notices before conditions are certain.
Conditions precedent costs
Legal cost	Costs of reviewing CP documents and completion deliverables.	Upfront	Borrower.	Delays in CP delivery can increase lawyer and adviser time costs.
Accession costs
Legal cost	Legal and filing costs for new obligor or guarantor accession.	On demand	Borrower group.	Relevant where group structure changes after signing.
Security release costs
Legal cost	Costs of releases, DS1 forms, filings and counsel review.	On early repayment	Borrower or security provider.	Should be budgeted when refinancing or selling secured assets.
Receiver costs
Other	Receiver remuneration and expenses from secured assets or indemnity.	On default	Security provider or charged assets.	Crystallises during enforcement and can materially reduce recoveries.
Insolvency practitioner costs
Other	Administrator, liquidator or adviser remuneration and expenses.	On default	Insolvent estate, borrower or secured assets.	Relevant after enforcement or insolvency event priority affects recoveries.
Court fees
Legal cost	Prescribed fees for issuing or progressing claims.	On default	Initially claimant lender recoverable if ordered or indemnified.	Relevant where debt recovery or security enforcement requires proceedings.
Litigation costs
Legal cost	Solicitor, barrister, expert and process server costs.	On default	Defaulting obligor if indemnity applies or court orders.	Indemnity wording can affect recoverability beyond normal litigation cost rules.
Insurance premium costs
Other	Premiums for required asset, title, credit or key person insurance.	Periodic	Borrower or asset owner.	Failure to maintain insurance may trigger default or lender step-in costs.
Lender-placed insurance
Other	Premiums and costs incurred if borrower fails to insure collateral.	On demand	Borrower or security provider.	Often more expensive than borrower-arranged cover.
Environmental report costs
Other	Consultant fees for environmental due diligence or remediation review.	Upfront	Borrower or property owner.	Common in property, energy, infrastructure and industrial asset lending.
Survey costs
Other	Surveyor fees for building, quantity or condition reports.	Upfront	Borrower or property owner.	May be condition precedent to real estate or development finance drawdown.
Project monitor fees
Other	Monitoring surveyor or technical adviser fees during project.	Periodic	Borrower or developer.	Can be payable before each development finance drawdown.
Account bank fees
Other	Account opening, maintenance, escrow or blocked account fees.	Periodic	Borrower or account holder.	Relevant where cash controls or secured accounts are required.
Hedging costs
Other	Swap premiums, margins, collateral costs or ISDA charges.	Periodic	Borrower or hedge counterparty customer.	May be mandatory to manage floating rate or FX exposure.
Hedge breakage costs
Break cost	Close-out or termination amount under hedging documents.	On early repayment	Borrower if hedge is terminated in-the-money for bank.	Early loan repayment may require expensive swap termination.
Negative carry cost
Break cost	Loss from lender funding before delayed or cancelled utilisation.	On demand	Borrower if delay is borrower-caused.	Important for underwritten acquisition facilities with uncertain closing dates.
Letter of credit commission
Utilisation fee	Percentage of outstanding LC face amount.	Periodic	Applicant borrower.	Applies where facility includes ancillary or guarantee instruments.
Issuing bank fee
Other	Fixed fee or percentage for issuing LC or bank guarantee.	On each utilisation	Applicant borrower.	Separate from lender margin and LC commission.
LC reimbursement amount
Other	Amount paid by issuing bank under LC or guarantee.	On demand	Applicant borrower or account party.	Often becomes immediately repayable debt after a beneficiary drawing.
Ancillary facility charges
Other	Overdraft, card, bonding or treasury service charges.	Periodic	Borrower using ancillary facility.	Pricing may sit in separate ancillary documents rather than main agreement.
Ancillary overdraft interest
Interest	Agreed overdraft rate on daily overdrawn balance.	Periodic	Borrower using overdraft.	Can differ from main revolving loan pricing.
Mandatory prepayment costs
Break cost	Break costs and fees triggered by required prepayment event.	On early repayment	Borrower receiving disposal, insurance or excess cash proceeds.	Mandatory prepayments can still carry funding loss costs.
Change of control prepayment costs
Break cost	Prepayment, break and accrued interest on change of control.	On early repayment	Borrower or target group.	Should be factored into sale, investment and restructuring transactions.
Accrued interest on repayment
Interest	Interest accrued to repayment or prepayment date.	On early repayment	Borrower repaying loan.	Payable in addition to principal and any prepayment premium.
Default costs indemnity
Other	Indemnity for losses and costs arising from event of default.	On default	Defaulting obligor or borrower group.	May overlap with legal costs, default interest and enforcement expenses.
Information breach costs
Other	Costs incurred due to late accounts, certificates or notices.	On default	Borrower or reporting obligor.	May trigger waiver fees, monitoring costs and default interest risk.
Compliance review costs
Other	Accountant or adviser review of covenant compliance.	Periodic	Borrower if required or after breach.	Negotiate when external verification is required and who pays.
Debt service account shortfall cost
Default interest	Default interest or fees on failure to fund reserve account.	On default	Borrower required to maintain reserve.	Relevant in project, real estate and acquisition finance structures.
Reserve account funding cost
Other	Cash trapped or deposited for debt service or maintenance reserve.	Upfront	Borrower or project company.	Not a fee, but reduces borrower liquidity and should be modelled.
Lender transfer fee
Other	Fixed administration fee for assignment or transfer processing.	Other	Usually transferring lender sometimes borrower if requested.	Borrowers should check if lender transfers can create borrower-paid costs.
KYC and onboarding costs
Other	Administrative and adviser costs for AML, sanctions and identity checks.	Upfront	Borrower or obligor group if agreed.	Delays in KYC can delay utilisation and increase transaction costs.
Sanctions compliance costs
Other	Costs of screening, reporting, freezing or compliance actions.	On demand	Borrower if caused by obligor or transaction issue.	Can block payments or drawdowns where sanctions concerns arise.
Consumer credit compliance costs
Other	Costs of regulated credit documentation and compliance if applicable.	Upfront	Lender operationally pricing may reflect cost.	Most corporate facilities are unregulated, but individual borrowers need checking.
Unfair charge risk adjustment
Other	Review or reduction of consumer charges that may be unfair.	Other	Lender bears enforceability risk borrower may dispute.	Relevant if facility is with an individual acting outside business purposes.
Penalty clause exposure
Default interest	Charges assessed against legitimate interest and proportionality.	On default	Drafting risk for lender payment risk for borrower.	Default fees and rates should not be extravagant or unconscionable.
Notarisation and legalisation costs
Legal cost	Notary, apostille and embassy legalisation fees.	Upfront	Borrower or relevant obligor.	Common for overseas obligors or foreign law security documents.
Translation costs
Legal cost	Certified translation fees for foreign documents or opinions.	Upfront	Borrower or overseas obligor.	Can affect timing where foreign subsidiaries provide guarantees or security.
Foreign counsel costs
Legal cost	Local law advice and opinions for overseas obligors or assets.	Upfront	Borrower group.	Material in cross-border UK law facilities with non-UK collateral.
Legal opinion costs
Legal cost	Counsel fees for capacity, enforceability or security opinions.	Upfront	Borrower or issuer of opinion.	Often required as a condition precedent for larger or cross-border deals.
Syndication costs
Arrangement fee	Arranger fees and expenses for syndicating commitments.	Upfront	Borrower or sponsor.	May include flex rights that alter margin or fees before closing.
Underwriting fee
Arrangement fee	Percentage of underwritten commitments.	Upfront	Borrower or sponsor.	Compensates arranger for underwriting risk before syndication completes.
Participation fee
Arrangement fee	Fee paid to lenders by commitment tier.	Upfront	Borrower or arranger from fee pool.	Can affect allocation of lender commitments in syndicated facilities.
Structuring fee
Arrangement fee	Fixed or percentage fee for designing facility structure.	Upfront	Borrower or sponsor.	Often separate from arrangement and agency fees.
Bookrunner fee
Arrangement fee	Fee letter amount for managing lender book and allocation.	Upfront	Borrower or sponsor.	Seen in larger syndicated or club facilities.
Annual review fee
Other	Fixed yearly fee for credit review or renewal.	Periodic	Borrower.	Common in smaller business and revolving credit facilities.
Minimum usage fee
Commitment fee	Fee if average utilisation falls below agreed threshold.	Periodic	Borrower.	Can make a standby line more expensive than expected.
Clean-down breach cost
Default interest	Default interest, waiver fee or costs after failure to clean down.	On default	Revolving facility borrower.	Seasonal businesses should ensure clean-down covenant is realistic.
Compound interest adjustment
Interest	Daily non-cumulative or cumulative compounded rate methodology.	Periodic	Borrower.	Calculation method affects actual payable interest under SONIA loans.
Day count interest effect
Interest	Actual/365, Actual/360 or other agreed day count convention.	Periodic	Borrower through interest calculation.	Day count choice changes effective annual cost, especially in multi-currency loans.
Business day adjustment effect
Interest	Payment dates adjusted by following or modified following convention.	Periodic	Borrower through additional accrual days.	Holiday adjustments can slightly increase or shift interest payments.
General indemnity costs
Other	Losses, liabilities and expenses from finance documents or transactions.	On demand	Borrower or obligors.	Borrowers should seek exclusions for lender negligence, misconduct and breach.

What Interest, Fees And Costs Should A UK Facility Agreement Cover?

A UK facility agreement should state not only the headline interest rate, but also when interest is compounded, how benchmarks are replaced, what fees apply to undrawn or cancelled amounts, and which enforcement and legal costs are recoverable. Borrowers should check the total cost of borrowing across the full facility life, while lenders should ensure fee triggers and cost indemnities are drafted clearly.

Which Charges Most Affect Borrower Cash Flow?

Margin, SONIA or Bank Rate interest, commitment fees and utilisation fees usually affect recurring cash flow and should be modelled before signing.
Arrangement, agency, security and valuation fees can create material upfront costs even before the first drawdown.
Break costs, prepayment fees and cancellation fees can make refinancing or early repayment more expensive than expected.

What Should Borrowers Negotiate In A Facility Agreement?

Caps, thresholds or reasonableness wording for legal costs, monitoring costs, audit fees and enforcement expenses.
Clear calculation mechanics for default interest, compounded interest and market disruption costs.
Whether VAT, stamp taxes, gross-up amounts and increased costs are payable only where properly incurred and evidenced.

Why Do UK Tax And Regulatory Costs Matter?

UK withholding tax, FATCA-related deductions, stamp duty and VAT can change the net economics of a loan. Facility agreements commonly include tax gross-up and indemnity provisions so that the lender receives the intended net amount, subject to negotiated exceptions.

Interest Fees and Costs in UK Facility Agreements

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FAQs

What interest, fees and costs are included in a UK facility agreement?

A UK facility agreement usually sets out the interest rate, how interest is calculated, payment dates, default interest, arrangement fees, commitment fees, legal costs, and any indemnities or break costs.

How is interest calculated in a line of credit agreement?

What is default interest in a facility agreement?

What fees are common in UK facility agreements?

What is a commitment fee in a line of credit facility?

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