The Most Common Business Loan Fees: Extra Costs to Watch Out For

Before you agree to accept your new business loan offer, check for these common fees.

Last Updated: Less than 6 months
The recently funded Paycheck Protection Program offers small businesses a way to meet payroll needs with financial aid from the government. This aid is only being provided through the SBA and its authorized lenders. And businesses can receive a loan of up to $10 million to help cover payroll.

To access this loan, you’ll have to complete an application with an authorized lender that consists of a two-page form in addition to required documentation. If you qualify, you’ll be loaned 250% of your average monthly payroll in 2019. You may also qualify to have the loan forgiven if no employees are compensated above $100,000 and at least 75% of the money goes to paying workers. If you can’t obtain forgiveness, the loan must be repaid in two years at a 0.5% interest rate after six initial months of interest deferment.

If you think your business would benefit, apply at a Paycheck Protection Program authorized lender.

You know how they say you should always read the small print? Well, when it comes to business financing, that’s great advice.

Many, if not most, business loans come with fees above and beyond the interest you’re paying. And if you don’t expect those fees, they can be a nasty shock when they appear. (After all, even a 1% fee on a $100,000 loan is an extra $1,000!)

So as you choose your business financing, you should look out for extra fees and costs. In this guide, we’ll walk you through common business loan fees and explain how they work so you know exactly what to look for.

Types of business loan fees

Many factors can affect what kinds of loan fees you pay and how much they cost. The type of loan you get matters, as does your lender and loan amount. Even your credit history can play a role.

Some lenders may have their own unique fees, but these are the most common business loan fees.

Fees and your loan amount

Most lenders take fees out of your total loan amount. So if you’re approved for a $50,000 loan but charged $1,000 in fees, you’ll end up getting $49,000. If you want to be a savvy borrower, you should plan accordingly.

Annual fees (lines of credit): Some lenders charge an annual fee to keep your business line of credit open and active.

Application fee: Lenders sometimes charge a fee for processing your loan application. Put simply, you get charged just to apply. Luckily, these fees don’t seem too common with business lenders. We rarely see banks or online lenders charge application fees.

Closing costs: Just like personal mortgages, many commercial mortgages and other commercial real estate loans come with closing costs. These can include things like appraisal fees, attorney fees, credit report fees, recording fees, and more.

Late payment fee: This one’s simple. If you’re late making a payment on your business loan, your lender might charge you a fee. Some lenders charge a flat late fee, but many charge a percentage of the missed payment. The vast majority of business loans include late payment fees.

Fees and payment frequency

Payment-related fees like payment fees and NSF fees can apply to daily, weekly, or monthly payments―or any other payment frequency, for that matter. So stay on top of those payments.

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Non-sufficient funds (NSF) fee: This is another common payment-related fee. If a lender tries to collect a business loan payment (either through an automated transfer or accepting your manual payment) but you don’t have enough funds in the associated bank account, you might get charged an NSF fee―and you’ll still be responsible for the usual payment too.

Origination fee: Many lenders charge an origination fee when you take out a business loan. All sorts of lender costs can get rolled into this fee, from underwriting costs to funding costs. Origination fees are usually calculated as a percentage of the total loan amount, with many falling in the 0.5% to 2% range.

Packaging fee: A packaging fee works much like an origination fee, in that it’s meant to cover various lender costs. On SBA loans (loans backed by the U.S. Small Business Administration), the rules say that lenders can charge packaging fees (but not origination fees).

Banks vs. online lenders

Banks often have lower interest rates than online lenders. But you can find the fees on this list at both traditional lenders and alternative lenders.

Prepayment penalty: You might think lenders would want you to pay back your business loans ASAP. But they can actually lose out on a lot of interest money with early repayment, especially on longer repayment terms. For that reason, some lenders charge prepayment penalties―extra fees for paying your loan balance early. This fee is usually found in the fine print, so it’s a good one to specifically ask your lender about.

Referral fee: Some lending marketplaces charge this fee. Think of it like a convenience fee for referring your application to an appropriate lender and helping you get funded.

SBA loan guarantee fee: When you get an SBA loan from a lender, the SBA promises that your lender will get the guaranteed portion of the loan (75% to 85%) back, even if you default on the loan. This guarantee is part of the reason that interest rates on SBA loans can be so low. But the SBA charges you a 2% to 3.75% fee as part of this guarantee.

Where SBA guarantee fees go

If it makes you feel any better, the SBA uses the guarantee fee to offer more SBA loans to entrepreneurs like yourself. They keep the loan program going.

Underwriting fee: When a lender underwrites your loan, they’re doing a bunch of analysis to figure out if you should get approved for a loan and what interest rate you should get. While it sometimes gets grouped under other fees, the underwriting fee specifically covers the lender’s time and expenses associated with this underwriting process.

Wire transfer fee: If you get approved for funding and opt to get your money through wire transfer (which can be faster than ACH transfers), you might get charged a fee for the service.

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Fees and APR

Many of the fees above get folded into a loan’s annual percentage rate, or APR. So when you compare the APR on your loan financing options, you can easily see if you’re paying a lot of fees in addition to interest.

While APR often looks like just interest (both are expressed as percentages, and the interest rate and the APR on a loan can be pretty close), the number actually includes both interest and fees. It’s basically how much you can expect to pay in interest rates and fees over the course of one year.

For that reason, short-term business loans often have very high APRs, even if the interest rates themselves aren’t that high. It’s because you don’t get the cost of all the loan fees spread over many years—you have to pay the fees on short-term loans all in one year (or maybe a little more or less, depending on your loan term).

A term loan with the same interest rate but a longer term (maybe 5 to 10 years) will have a lower APR simply because the fees get spread out over several years. (On the other hand, you often pay more in interest with long-term financing.)

Hidden(ish) fees

APR can help you see what you’re paying in rates and fees, but you should still ask your lender about all (and we do mean all) the possible fees on your funding. After all, financial surprises are usually not good surprises.

The takeaway

An owner financing contract can be a good way for buyers to get a mortgage loan even when they don’t qualify for third-party financing. And for sellers, the speed and potential for extra cash can make the risks of owner financing worthwhile.

All the same, think carefully before you agree to owner financing. There’s a reason most people get funding from commercial lenders, after all. And if you decide to proceed, consult an attorney to keep everything on the up-and-up.

Compare the cost of owner financing with the cost of traditional financing with our commercial loan calculator.


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