Everything You Need to Know About Hidden Business Loan Fees

December 28, 2021

Everything you need to know about hidden business loan fees: A business loan can be extremely beneficial to any company, whether it is new or established. It can be used to fund day-to-day operations, equipment, inventory, and marketing, among other things. It’s critical to become familiar with hidden business loan fees before proceeding with a company loan. You will be able to avoid unexpected expenses that may lead to a debt cycle if you do so. We’ll go over what you need to know about hidden fees for business loans in the sections below.

What are Business Loan Fees?

You should be able to borrow money without paying any costs in an ideal world. The truth is that lenders must make a profit in some way. That’s why many of them tack on fees on top of the interest rate. It’s critical to understand these fees because they can affect your monthly payments and the overall cost of your loan.

When you obtain your loan agreement, the costs are usually listed in fine print. Some lenders may also list their costs on their websites so you know what you’re getting into before you apply. If you’re thinking about taking out a loan but aren’t sure how much it would cost, don’t be afraid to ask the lender.

Types of Hidden Business Loan Fees

For company loans, there is a range of hidden expenses. Here are some of the most common charges you might encounter.

Applications Fees

If you want to get a loan, you’ll have to fill out an application, either online or in person. To recompense themselves for examining your loan application, scrutinizing your documents, and pulling your credit score, some lenders may try to charge you an application fee. Application fees may be levied upfront or amortized into your monthly payments, depending on the business lender.

Origination Fees

Origination fees are similar to application fees in that they reimburse lenders for the costs associated with making you a loan offer. You’ll almost always be charged an application fee or an origination cost. You can expect fixed fees or a percentage of your loan principal as origination fees. They could, however, be included in the loan itself.

Late Payment Fees

As a small business owner, you want to make all of your payments on time as much as possible. However, life can throw you a curveball and force you to miss a payment now and then.

Lenders may charge you late fees if your payment is past due. These costs are typically flat fees or a percentage of the outstanding balance on your loan. If you enroll in automatic payment deductions and retain enough money in your account, you can easily avoid late fines.

Related: Business Loan Requirements Complete Checklist for 2022

Prepayment Fees

You can save a lot of money on interest if you pay off your loan early. However, if your lender charges prepayment penalties, it could be costly. Unfortunately, some lenders punish borrowers who repay their loans early because it reduces their revenues. If you want to pay off a loan before the end of its term, make sure you won’t be charged a prepayment fee.

Non-Sufficient Funds Fees

If you want to repay your loan through automatic withdrawals, you must pay non-sufficient funds to charge any time a lender deducts money from your account and there isn’t enough in your account to cover the deduction. If you don’t keep an eye on your checking or savings account, non-sufficient funds fees are usually flat costs that can mount up quickly.

Closing Costs

Closing expenses aren’t just for mortgages, contrary to popular opinion. When you first take out a business loan, you may notice them.

Closing expenses often include all the fees you’ll have to pay, such as origination fees, processing fees, and others. Find out exactly what closing costs a lender charges so you can be sure they’re legitimate.

Related: Your Guide to Long-Term Business Loans for 2022

Draw Fees

With commercial lines of credit, draw fees are frequent. They’re essentially origination fees that are calculated as a percentage of the loan amount. Once the funds have been delivered to your bank account, you’ll most likely have to pay a draw fee the first time you borrow money from your business line of credit.

Guarantee Fees

While SBA loans have numerous advantages that you won’t find anywhere else, they do come with guarantee fees. Lenders pay these fees in exchange for the SBA guaranteeing a major portion of their loans. While each form of SBA loan has its unique set of conditions, the majority of SBA guarantee costs must be paid within 90 days of the loan’s approval. These fees are determined by the amount of the loan and the length of the payback period.

Conclusion

Hidden costs will have a substantial impact on how much you pay for your loan, which is why shopping around and comparing your options is a good idea. If a lender advertises “no fees,” keep in mind that they may compensate with higher interest rates. Alternatively, they may have stringent requirements that are difficult to meet.