Many borrowers are in for a surprise the moment they realize there are fees charged for acquiring the loan that they did not know about previously. This is why it is important to read the fine print. Do not just sign a loan document without getting into the details.
Here are some of the most common fees that lurk in the fine print of many business loans:
Check processing fee
Different lenders may offer differing payment methods. A common way is automatic deduction from your account but should you prefer to forward your payments via check, always ask if there are check processing fees.
The Small Business Administration (SBA) backs loans that are subject to a guarantee fee. This fee is charged to the lending institution as a security that they will recoup the lost money should the borrower defaults on the loan. The lender then passes the responsibility to you, the borrower, but the passed amount may vary.
If you are getting an SBA-backed loan under $150,000, however, you are not subject to a guarantee fee.
Origination fees are charged for the work done to get your application processed including credit checks, underwriting, and information verification, among others. Lenders may charge this to you upfront by deducting the cost directly from your loan. Typically, origination fees cost about one to four percent of your total loan amount.
However, if you have excellent credit, you might be in a better position to negotiate than those who are have not-so-stellar scores.
Interest is wrapped on the term of the loan and your lenders profit from that interest. That means that when you decide to pay off your loan early, they lose money. As a safety net, they charge prepayment penalty fees to their borrowers. APRs do not reflect this cost, however, so better ask your lender first and read the fine print in detail.
Third party fees would depend on the purpose of your business loan. Mostly, these include necessary charges for legal documentation, appraisals, etc. Ask your lender about the kinds of fees that will be included and if this will be deducted or added to your loan.
APRs give you a better picture of the total cost of the loan. Otherwise, you may have to do further inquiries on fees and charges added. Knowing the difference could help you in comparing offers and choosing among lenders.