Before you move forward with applying for a business loan, it’s a good idea to familiarize yourself with small business loan fees. This can allow you to budget for your loan and help you avoid surprise expenses that take a toll on your bottom line.
What Are Business Loan Fees?
When you commit to financing as a business owner, you’ll likely have to repay the principal plus interest. On top of that, you may be on the hook for other fees to cover various costs. Business loan fees vary by lender and loan type.
The good news is that lenders must disclose them in your loan agreement so that you’re well aware of them in advance. Of course, if you believe the fees are unfair or can't afford to pay them, you don’t have to proceed with the business loan process.
10 Common Business Loan Fees
There are a variety of small business loan fees out there. The most common ones include the following:
1. Application Fees
To take out a loan, you’ll need to fill out a loan application. Since it takes time to review loan applications, some lenders charge application fees. If a lender asks you to pay an application fee before they approve you for a loan, this might not be worth your time.
2. Origination Fees
It costs money for lenders to review and originate loans. That’s where origination fees come in. Some origination fees are flat while others are a percentage of the loan principal. Origination fees for small business loans tend to be anywhere between 1 to 6%.
3. Packaging Fees
Packaging fees are similar to origination fees. They are designed to pay for a variety of lender costs. For example, SBA loans charge packaging, rather than origination fees.
4. Underwriting Fees
Underwriting involves analyzing your business's financial information to determine whether to approve you for a loan and what rate to offer you. Some lenders charge underwriting fees to cover their time spent on this process.
5. Administrative Fees
To cover the cost of your loan’s upkeep, some lenders charge administrative fees. Sometimes these are included as monthly payments, depending on the business financing lender you select.
6. Annual Fees
Annual fees are similar to administrative fees. The only difference is you pay them every year instead of every month. They may run you hundreds of dollars annually, so consider this when evaluating your business's yearly budget.
7. Late Payment Fees
If you’re unable to make your payments on time, you may get charged with late fees. These late fees are usually flat fees or charges as a percentage of your missed payment. Automatic deductions or calendar reminders in your phone can help you avoid late fees.
8. Prepayment Fees
In many cases, you can save thousands of dollars if you pay your loan off early. Unfortunately, however some lenders will penalize you for doing so with prepayment penalty fees.
9. Non-sufficient Funds Fees
You may have to pay a non-sufficient funds fee if you make a loan payment and don’t have enough money in your bank account to cover it. Non-sufficient funds fees are usually flat, but you should check with your lender to confirm this.
10. Wire Transfer Fees
Wire transfer fees are usually flat fees that you’ll have to pay if you prepay your loan with wire transfer payments. They typically range from $10 to $20.
Other Business Loan Fees:
SBA Guarantee Fees
If you take out a Small Business Administration (SBA) loan
, the SBA will guarantee a portion of the loan amount (currently up to 85 percent). However, you’ll have to pay a SBA guarantee fee for them to do so. The guarantee will be based on the dollar amount guaranteed and the repayment terms, rather than the loan’s total value.
If you'd like to avoid paying this loan fee, pursue financing outside of the SBA.
There are many loan marketplaces that make the loan shopping experience easier. While they may seem like a good resource, they often charge referral fees for “referring” you to a lender. If you want to avoid this, you can contact a business loan provider
Do All Lenders Charge Fees?
If you do a quick Google search for “business loans no fees,” you’re bound to come across some lenders who claim they don’t charge fees.
While there are lenders who will only ask you to pay for the principal and interest, they aren’t necessarily the most affordable choice. Here’s why: Their loans often come with sky-high interest fees to make up for the fact that they don’t charge other fees.
So, if you find a lender that states they offer “fee free loans,” pay close attention to their business loan rates
. Also, read reviews on them and check out their rating on the Better Business Bureau to make sure they’re reputable.
Conclusion: Be Mindful of Small Business Loan Fees
Now that you’re aware of common business loan fees, you’ll know what to look for on lenders’ websites and loan agreements. Once you understand all the fees a lender charges, add them into the principal and interest fees. This can help you identify the overall cost of the loan and figure out whether you’d like to take it out.
At Fora Financial, we flexible provide business financing to small business owners nationwide. If you'd like to learn more about how our business loan process works, click the link below to get a free quote.