As the Australian lending landscape evolves in 2025, guarantee fees are drawing renewed attention from both business owners and home buyers. Whether you’re applying for a business loan with the help of the government’s SME Guarantee Scheme, or your lender requires a guarantor for a home loan, these fees can have a significant impact on your overall borrowing costs. So what are guarantee fees, why do lenders charge them, and how do recent policy changes affect your next loan application?
What Are Guarantee Fees?
A guarantee fee is a charge paid by a borrower to a lender (or a government agency) when a third party guarantees part or all of a loan. Essentially, it’s the price for having someone else back your debt—reducing the lender’s risk if you default. In Australia, guarantee fees are most common in two contexts:
- Business loans: Especially those backed by government schemes, like the SME Recovery Loan Scheme or its successors, where the government guarantees a percentage of the loan.
- Home loans: When a family member acts as guarantor for a first-home buyer, although in these cases the fee structure may differ (often through Lenders Mortgage Insurance or LMI).
The fee is typically calculated as a percentage of the loan amount and can be paid upfront or added to the loan balance, depending on the lender and scheme.
How Guarantee Fees Affect Borrowers in 2025
This year, guarantee fees are in focus due to several key policy updates and market trends:
- SME Lending: The federal government’s SME Guarantee Scheme, revamped in 2025, now caps guarantee fees at 1.5% annually for eligible loans. This aims to keep borrowing affordable for small businesses while maintaining lender participation. For a $500,000 business loan, this translates to $7,500 per year in guarantee fees, on top of interest and other charges.
- Home Loans: While family guarantee arrangements rarely have a direct ‘guarantee fee,’ banks may still require LMI if the effective loan-to-value ratio (LVR) remains high. LMI premiums have inched up in 2025 due to rising property values, indirectly increasing costs for those needing a guarantor.
- Green and Infrastructure Loans: With the government pushing for more sustainable lending, several new green finance schemes in 2025 offer reduced guarantee fees (as low as 0.8% per annum) to encourage investment in renewable projects.
Borrowers should always factor guarantee fees into the total cost of finance—not just the advertised interest rate. Over a multi-year loan, these fees can significantly impact your repayments and overall return on investment.
Real-World Examples and Case Studies
Consider these 2025 scenarios:
- Case 1: A Brisbane café owner applies for a $300,000 SME loan under the government scheme. The annual guarantee fee is 1.5%, or $4,500 per year. Over five years, that’s $22,500 in fees—enough to influence which lender or product is the best fit.
- Case 2: A Sydney couple uses a parental guarantee to secure a 95% LVR home loan. The bank waives LMI due to the guarantee, but if the property market dips and the LVR rises, the bank may require LMI or a guarantee fee to maintain the arrangement.
- Case 3: An Adelaide solar installer secures a $200,000 green loan with a government guarantee. Thanks to a 0.8% guarantee fee, the business saves $1,400 per year compared to standard commercial loans, making the switch to renewables more viable.
These examples highlight the need to compare not just interest rates, but all fees—including guarantee fees—when shopping for finance in 2025.
Tips for Managing Guarantee Fees
- Ask for a breakdown: Request a full fee schedule from your lender, including all guarantee-related charges.
- Negotiate where possible: Some lenders may be flexible on fees for strong applicants or in competitive sectors.
- Consider alternatives: If the guarantee fee is steep, compare loans with lower LVRs, or explore products without a guarantee requirement.
- Review annually: For loans with ongoing guarantee fees, check if your LVR or risk profile has improved—this could help reduce or remove the fee over time.
Staying informed and proactive is the best way to avoid paying more than you need to on guarantee fees in 2025.
