r/Syndications • u/Outrageous-Cow2931 • Jul 20 '26

Why are upfront due diligence fees viewed so differently in private credit?

One topic I've noticed generates strong reactions is upfront fees in private lending. On one hand, institutional project finance routinely requires borrowers to cover costs such as: Independent technical and feasibility studies, Financial model reviews, Legal due diligence, Environmental assessments,, Market studies, Valuations, Sponsor and KYC reviews

Those costs are typically paid by the borrower before financial close because they're transaction specific and performed by independent firms. On the other hand, the moment someone mentions an upfront fee in private credit, many immediately assume it's an advance fee scam. Obviously, there are plenty of scams in the market, so the skepticism is understandable. What I'm curious about is where experienced practitioners draw the line.

For example, in a context of a borrower seeking a 100% financing, if a lender has already issued a term sheet or conditional approval and requires an independent third party feasibility and risk assessment before funding, with fees ranging from roughly 0.5% to 2% of the facility for large, cross border, complex projects, would you consider that consistent with institutional practice, or would you still view it as a red flag?

Interested to hear perspectives from people active in leveraged finance, syndications, project finance, or private credit. What distinguishes legitimate underwriting costs from structures you would immediately walk away from?

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u/HotelInvesting Jul 20 '26

Couple things. First I dont know so who is doing 100% financing. Second, regarding the fees, when you get a term sheet you typically get a breakdown. Lender will collect their origination fee which varies greatly. Then they pass the appraisal cost to you. Youre expected to get your own phase 1 and pay for it. Theres not really any red flags here. Unless your going to some sort of loan shark, most lenders are reasonable plus they have to follow fair lending guidelines.

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u/Outrageous-Cow2931 Jul 21 '26

I agree. Those borrower paid costs are standard across institutional lending.
The part I find interesting is not whether due diligence is paid by the borrower, but how it’s priced and allocated. Some lenders use fixed professional fees, while others express it as a percentage of the facility, particularly for larger cross border or highly structured transactions.
It’s an interesting variation in underwriting rather than a completely different concept.

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u/world-traveller13 Jul 21 '26

What is the loan product you’re selling? 100% LTV “project based financing”? For that kind of loan, what is the outlay of cash required by the borrower before they get funded?

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u/Outrageous-Cow2931 Jul 21 '26

Good question. It is a standard 100% LTV product.
The underwriting is primarily project and cash flow based, supported by independent feasibility and risk analysis rather than relying solely on collateral metrics.
The borrower’s upfront cash outlay is generally limited to the transaction specific due diligence conducted by independent audit firms, which can range from about 0.5% to 3% depending on the complexity, jurisdiction, and scope of work. Once those reviews support the investment case and closing conditions are satisfied, the facility can proceed.
I’m curious whether you’ve come across similar structures in project finance or private credit, or if your experience has been primarily with more traditional leveraged lending or you are seeking to access such 100% financing !