Origination Fee

What is an Origination Fee?

An origination fee is a one-time charge assessed by a lender when a new loan or credit line is established. It covers the cost of processing, underwriting, and funding the credit facility. Origination fees are typically calculated as a percentage of the loan amount — for example, a 1% origination fee on a $10,000 credit line would be $100.

Origination Fees in B2B Financing

Not all B2B financing providers charge origination fees. Some include their costs in the interest rate or merchant discount rate instead. When evaluating financing options, borrowers should consider the total cost of credit — including origination fees, interest, and any other charges — to make an accurate comparison.

How Origination Fees Affect Borrowers

Origination fees increase the effective cost of borrowing beyond the stated interest rate. A loan with a 5% interest rate and a 2% origination fee is more expensive than a loan with a 6% interest rate and no origination fee, depending on the term length. This is why APR (which includes all fees) is a better comparison metric than interest rate alone.

Key Takeaways

• Origination fees are one-time charges for establishing a credit facility
• They're typically a percentage of the loan or credit line amount
• Not all B2B financing providers charge origination fees
• Always compare total cost of credit, not just interest rates