Getting a company loan is a good way to cover unexpected expenses and cash shortages, or invest in your business to accelerate its growth. However, business loans cost money. When borrowing money, you will need to pay interest and fees.
Understanding common business loan fees and how to avoid or minimize them can help you save money on your loan.
What is a small business loan fee?
Small business loan fees are charges that are charged in addition to the interest you must pay over the life of the loan. Your lender will charge a variety of fees, including the services of your loan, the costs of closing your real estate loan, or closing costs to get an advance fee to pay off your loan early.
All lenders charge different fees, so you need to shop and compare multiple lenders to see which offers the lowest cost. Lenders often charge high fees to dangerous borrowers, so you should shop, especially if your credit is insufficient.
Can I avoid small business loan fees?
While you can’t avoid most business loan fees, you can shop with multiple lenders to see which ones charge the lowest fee. However, there are several fees that you can avoid, such as deferred fees and invalid funding fees.
To avoid late payment fees, timely payments will be prioritized. Set reminders and streamline your repayments using Autopay from your business bank account. Also, keep an eye on your bank account and collide with inadequate funds (NSF) fees.
General business loan fees
Business lenders can charge a variety of fees, but lenders usually don’t charge all of these types of fees. Learn about the various fees your lender charges and know what to look for in a loan agreement.
Management fee
Management fees are general fees that are not very specific about what is covered. The lender will charge these fees to pay for various management and documents related to receiving, reviewing, and paying funds.
Annual fees
Annual fees are the regular fees you pay each year. These types of funding are common to the business lines of credit or business credit cards, as they provide a revolving credit line that can be withdrawn repeatedly. To pay for that convenience, you will need to pay an annual fee to open and make it available for your credit line. The annual fees typically range from $50 to several hundred dollars.
Application fee
The application fee is the prepayment fee that the lender will charge when submitting the application. This fee covers the cost of application reviews and loan decisions.
The best business loans do not charge an application fee. Generally, try to avoid these fees. Because you can pay just to be denied.
Evaluation fee
If you are getting a secured business loan, the lender can hire an appraiser to determine the value of that collateral. In doing so, the lender will ensure that the collateral fully supports the amount of the loan and protects your investment.
The cost of the valuation fee will vary depending on the collateral being evaluated. Evaluating business equipment costs up to just $500 for complex equipment such as medical machines, up to $10,000.
For commercial real estate, small facilities can pay large facilities ranging from $2,000 to $5,000 to large facilities up to $10,000 or more. You can ask the appraiser in advance about the valuation cost so that you can prepare for this fee.
Closure costs
Closure costs are common with real estate loans. You will pay these fees when you close your loan and sign the final documents. However, closure fees usually include many other fees, including valuation fees, lawyer fees, credit check fees, and other related fees.
Collection fee
If you miss a payment or multiple payments and default to your business loan default, the lender will charge you to cover the costs of trying to collect the outstanding money. In many cases, the fee is a percentage of the amount you have not paid.
Credit check or credit check fee
Credit check fees cover the cost of requesting a copy of your credit report from one of the credit bureaus. In most cases, the lender will not charge this fee as a separate fee, but will deploy the cost to other fees charged.
However, you can pay from $50 per session to $150 per month to check your business credits. Prices usually vary based on your purchase options from the Business Credit Bureau, as they offer multiple credit check packages.
I’ll discount the fee
Credit costs for a typical business line, and whenever you withdraw money from the credit line, you may be charged a draw fee. This fee is usually a percentage of the amount drawn, such as 1 or 2 percent. Not all lenders will charge a draw fee, so we recommend considering a credit lender who won’t charge this fee and saving money on your withdrawals.
Late payment fee
The lender will evaluate the late payment fee when making payments after the due date. Fees can be around $30 or $40. Or it could be a percentage like 5% of your loan payments.
Insufficient funding fees
If you are trying to make a payment by check or bank transfer, the lender can charge an insufficient fund (NSF) fee just to find out that there is not enough money to cover the payment. Banks may also charge similar or overdraft fees to overdraft accounts or may denial of the transaction entirely.
Invalid funding fees are usually the exact amounts that depend on the lender, ranging from about $10 to $50.
Origination fee
Origination fees are prepaid fees that cover the costs of reviewing your application and funding your loan. Sometimes lenders call them the management fee.
Origination fees are usually around 2% to 5%, the percentage of the amount borrowed. To pay the fee, you can either reduce the amount you receive or increase the startup balance of your loan.
For example, if you get a $10,000 loan with a 2% origination fee, you can receive $9,800 or $10,000, but you have a $10,200 starting loan balance.
Prepayment penalty
A prepayment penalty is a fee that you must pay if you pay your loan before your scheduled date. Not all lenders charge this fee. If you follow the minimum loan payment schedule, you don’t have to pay.
This fee is usually a percentage of the amount paid early. Before you pay off your loan, compare the interest savings from early repayments with the cost of your penalty fee. You can then see if early repayment of your loan is worth the cost of your upfront penalty.
SBA 7(a) Guarantee Fee
Small business administrators will guarantee loans provided through SBA-approved lenders to help small businesses qualify for loans if they are not eligible for traditional financing. However, to assist with these loans, SBA may charge a guaranteed fee for an SBA 7(a) loan. The SBA 504 loan will not be charged this fee. However, an annual service fee of 0.331% of the outstanding balance of the loan is required.
For an SBA 7(a) loan, the guarantee fee is based on the amount you borrow.
| The amount borrowed | Loan fees for less than 12 months | Loan fees for more than 12 months |
|---|---|---|
| 0-1 million dollars | none | none |
| $1,000,01-5 million | 0.25% of guaranteed amount | In addition to 3.5% of the guaranteed portion of the loan up to $1,000,000, 3.75% of the guaranteed portion of the loan exceeds $1,000,000. |
Underwriting fee
Underwriting fees are fees that cover the amount that a lender spends reviewing the application and preparing the loan document. It is often the percentage of the amount of loans, which is common for real estate loans.
Unused line fees
In addition to the business line of credit and draw fees, lenders may charge monthly fees based on the amount of credit lines you are not using. This is usually a small percentage.
For example, if you have a $100,000 credit line with a $20,000 balance, your unused credit is $80,000. If the fee is 0.10% of the unused credit limit, you will pay $80 for the unused line fee.
Conclusion
Small business loans always come with a variety of business loan fees that you can’t avoid. However, understanding what the typical fees are can be useful when comparing business loans to determine if you are given a great loan offer. Make sure you take the time to shop, compare loan offers and find lenders at the lowest rate.
