Origination Fee
Definition
An origination fee is an upfront charge assessed by a lender for processing and underwriting a loan or financing agreement. Origination fees are typically expressed as a percentage of the total loan amount (usually 1–6%) and are either deducted from the loan proceeds or added to the total amount financed. In hard money lending, origination fees are often called 'points' — 1 point equals 1% of the loan amount. Origination fees compensate the lender for the administrative costs of evaluating, processing, and funding the loan and are separate from interest charges.
Example
A business obtains a $200,000 term loan with a 3% origination fee. The fee is $6,000, deducted from proceeds. The business receives $194,000 but owes the full $200,000 plus interest. This effectively increases the true cost of borrowing.
Related Terms
Hard Money Loan
A hard money loan is an asset-based loan secured primarily by the value of real property rather than...
SBA Loans
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Term Loan
A term loan is a traditional business loan where a borrower receives a lump sum of capital and repay...
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