Business loans suffer the exit fee blight

Exit fees – extra payments mortgage holders have to pay in order to change banks or pay off loans early – may also be limiting the ability of business owners to get the best finance.

As the credit squeeze pushes interest rates higher, exit fees have come in for criticism as an obstacle to consumers shopping between financial institutions to find the best finance deal.

Until now the focus has been on the exit fees, often worth over $1000, that home mortgage holders can be forced to pay. Treasurer Wayne Swan today criticised the practice of charging exit fees: “We believe it’s a serious issue that Australian families confront and that’s why we are committed to doing everything we can to remove barriers that stop families voting with their feet to switch banks it they are unhappy.”

But according to Dennis Orrock, the managing director of finance information site InfoChoice, some business loans also come with exit fees, although the practice is not as widespread as in the residential mortgage sector.

“Exit fees can be common on some commercial loans, especially for small business owners borrowing against their homes through low-doc loans,” Orrock says.

Pure commercial loans or overdraft or credit fees are less likely to have an exit fee than longer term or fixed rate business loans, Orrock says.

Shane Swinton, a finance broker with Smartline, says he hasn’t seen banks impose the standard $700 “deferred establishment” fee – in effect an exit fee – on the business facilities he has dealt with recently from the ANZ and Westpac banks.

But, Swinton says, business borrowers considering their finance options should keep in mind that banks will often charge a fee to exit business loans with a fixed repayment period.

“With fixed rate loans, exiting actually involves breaking a contract with the bank, so they charge a reimbursement fee for costs they will potentially incur as a consequence,” Swinton says.