We study the dilute loop models on the geometry of a strip of width N. Two families of boundary conditions are known to satisfy the boundary Yang–Baxter equation. Fixing the boundary condition on the two ends of the strip leads to four models. We construct the fusion hierarchy of commuting transfer matrices for the model as well as its T- and Y-systems, for these four boundary conditions and with a generic crossing parameter λ. For rational and thus a root of unity, we prove a linear relation satisfied by the fused transfer matrices that closes the fusion hierarchy into a finite system. The fusion relations allow us to compute the two leading terms in the large-N expansion of the free energy, namely the bulk and boundary free energies. These are found to be in agreement with numerical data obtained for small N. The present work complements a previous study (Morin-Duchesne and Pearce 2019 J. Stat. Mech. 1909) that investigated the dilute loop models with periodic boundary conditions.