An establishment fee is a one-off charge paid to the lender at settlement. It covers the lender's cost of assessing the file, preparing the loan documentation, and establishing the facility. It is distinct from ongoing fees (line fees, monthly account fees) and from third-party costs the borrower pays separately (valuation fees, legal fees, Land Titles Office registration fees).
In private credit, establishment fees typically sit at: - 1-2% of loan amount on standard first-mortgage residential and commercial facilities. - 2-3% on second mortgages, bridging, or shorter-dated products where the lender's fixed assessment cost is spread over a shorter term. - Up to 3-4% on complex or very short-dated files (residual stock, mezzanine, certain specialised assets).
The fee is usually deducted from the advance at drawdown rather than paid separately. The borrower receives the loan amount less the establishment fee, less any prepaid interest or legal costs the lender deducts at settlement.
When comparing lenders on a short-term private credit file, always look at total cost over the planned term: rate plus establishment fee plus third-party costs, amortised across the tenor. A lender with a lower rate but a higher establishment fee can be more expensive in total on a 3-6 month file than a lender with a slightly higher rate and lower upfront fees. A simple total cost table, or annual percentage rate (APR) calculation, makes that comparison straightforward before signing.