Looking for a perfect business funding program for your business can be intimidating and confusing task. From small business loans to credit lines and cash advances, there are so many types of business loans available in the market that all work differently, and all funding programs charge different costs and fees throughout the application and borrowing process.
The only helpful way to get the outstanding deal on a small business loan is to look around and be knowledgeable. In case you want to make sure that you’ve found the best small business loans deal, it is also important to understand what type of fees and charges a lender might possibly charge. Here are a few common fees and expenses that small business loans often come with.
- Application Fee
These are the costs that the lenders acquire when evaluating your small business loan application such as checking your credit score both personal and business or evaluating your business assets. For the most part lenders don’t charge an application fee, so make sure you consider your options vigilantly before applying for a small business loan.
- Origination Fee
The origination fee is a percentage of the principal you are going to borrow. And the origination costs are charged by the lenders as a way to cover their basic upfront administrative charges. The whole process of applying and getting a small business loan takes time, effort and money. These costs can include the paperwork, verifications and calculations performed to determine the loan rate.
- Draw Fee
The draw fee is just like an origination cost, however is relevant instead for business lines of credit. The same as an origination rate, the draw cost is normally stated as a percentage that is subtracted from the capital you have asked for from your business credit line before dispersal.
- Guarantee Fee
If you’re applying for a loan from Small Business Administration (SBA), you need to pay a guarantee fee on it. Actually the SBA is a government agency helping small businesses, but doesn’t directly make loans. In fact, the SBA guarantees the loan to other lenders. Consequently, the lender will have to pay a part of that guaranteed amount to the government and might pass the outlay along to you.
- Bank Wire Fee
In small business borrowing process, lenders typically wire the funds to your business bank account through ACH. As the banking institutions need to talk to each other and make certain that the cash is going to the right place and that there is no fraud, the whole process generally takes 1-3 days. There is another funds wiring option, in which the company wire funds by a bank wire. The bank wire option is quick and time saving as compared to ACH, but a little bit expensive.
- Closing Fee
Closing fees are the fees consist of all charges charged for processing a loan. This usually include loan origination and closing fees, loan processing fees, referral fees, and packaging fees.
- Late Payment Fee
Most lenders will charge you late fee when you make late payment on loan and this is why you have to be organized with your loan repayments as well as when planning budgeting for your small business. And in case the repayments of small business loans are directly taken from your business bank account make certain that you have sufficient amount of cash available and if you don’t have, you need to set reminders to pay on time to avoid any late payment fee.
- Check Processing Fee
In case you want to repay your small business loan to lender by checks instead of debit/credit account transactions, you will be charged with a check processing fee as well. The process of check processing normally takes extra time and effort and that is why lenders don’t prefer this mode of payment.
- Underwriting Fee
Same as with application fee, the underwriting fee is how lenders recover the amount of cash and time they spend in underwriting your loan application. The lender will assess the financial statements of a business and also evaluates the market data to find out whether to give you a loan plus how much interest will be charged on that loan.
- Prepayment Penalty
Prepayment penalty is a fee that is charged by your lender when you pay early. Not all lenders charge this fee. Most funding programs don’t have prepayment penalty fee, however you need to double-check the fine print when applying for a loan.
These are some of the fees associated with a small business loan that you need to consider before applying. In the end, it is always advised do not agree to the terms and conditions of a loan that are hidden until you double-check it with your lender.