Business loan charges and fees: the processing fee in loan offers and every other charge

What a processing fee in loan offers covers

A processing fee is a one-time charge a lender takes for assessing your application and setting up the loan. It is usually a percentage of the loan amount, and lenders add GST or other applicable taxes on top. Lenders often deduct fees from the amount they disburse, so you receive less than the sanctioned figure. Bajaj Finance, for example, deducts stamp duty upfront (Bajaj Finance).

The fee is part of your real cost even though it never appears in the EMI. That is why RBI makes lenders fold it into the APR, the annual percentage rate, shown in the Key Facts Statement (KFS) (RBI notification).

Published processing fees

These are the caps lenders published on their own pages on 02-Oct-2026. They are indicative and set by the lender. Your sanction letter and KFS give your actual fee.

Every business loan charge, in one table

Kotak notes one more rule worth knowing: on priority sector loans up to ₹50,000, it applies no loan-related charges, including guarantee fees (Kotak Mahindra Bank).

What the Key Facts Statement must show

RBI requires a KFS for new retail and MSME term loans sanctioned on or after 01-Oct-2024, from every regulated lender (RBI notification, 15-Apr-2024). On cost, the circular says:

• The KFS comes with a unique proposal number. It stays valid for at least three working days on loans of seven days or more (RBI notification).
• It includes an APR computation sheet and the full repayment schedule (RBI notification).
• The APR includes every charge the lender levies. Third-party charges, such as insurance or legal fees collected at actuals, are part of the APR and shown separately (RBI notification).
• A fee not in the KFS cannot be charged later without your explicit consent (RBI notification).
• Penal charges must state their amount and reason in the agreement and the KFS, and also on the lender's website (RBI notification).
• Whether pre-payment charges apply must be stated in the sanction letter, the agreement and the KFS (RBI notification).

Pre-payment charges: the 2026 rule

From 01-Jan-2026, for floating-rate business loans to individuals and micro and small enterprises (RBI notification, 02-Jul-2025, RBI notification):

• Commercial banks (other than small finance, regional rural and local area banks), Tier 4 urban co-operative banks, upper-layer NBFCs and all-India financial institutions charge nothing.
• Small finance banks, regional rural banks, Tier 3 urban co-operative banks, state and central co-operative banks and middle-layer NBFCs charge nothing on loans up to ₹50,00,000.
• It does not matter where the repayment money comes from, and there is no lock-in.
• A loan that mixes fixed and floating rates is covered if it is floating when you prepay.

Outside that rule, such as fixed-rate loans or medium enterprises, the lender's policy applies. Even then, a term-loan charge must be on the amount prepaid, and nothing is charged if the lender asks you to prepay (RBI notification). Where a 4% schedule applies to ₹6,00,000 outstanding, the charge is ₹24,000 (HDFC Bank). HDFC and Kotak both publish nil foreclosure for fixed-rate loans up to ₹50,00,000 to micro and small enterprises (HDFC Bank, Kotak Mahindra Bank).

How fees change what you pay

Take ₹10,00,000 over 36 months at 14% on a reducing balance. A 2% processing fee and ₹3,500 documentation, both deducted at disbursal, leave you with ₹9,76,500. The EMI stays ₹34,178, so the APR is about 15.68% (HDFC Bank). Penal charges add up too: a ₹33,000 instalment ten days late costs about ₹325 at 36% a year, or about ₹72 at 8% (Bajaj Finance).

See APR vs flat vs reducing rate for the method, and the interest rate hub for published rates. When your file is ready, the free loan readiness check shows how lenders are likely to read it.