Many small business owners turn to loans to help them grow their business, but many are unaware of business loan fees when they apply. Business loans can be an outstanding way to help propel your business to the next level, but it’s sometimes not as easy as receiving money and then paying back that exact amount to the lender.
In addition to the amount you will borrow from a lender, you will also be required to pay interest. After all, that is how the lender makes money for their business. Also, some lenders may have some other business loan fees that come with receiving a loan.
Understanding what these fees are, whether they apply to the loan you are wishing to receive and how much they will cost you are essential to determining whether that specific loan might be right for you. This is especially true because loan fees can range from as little as 0% to as high as 10% of the total loan amount.
Let’s take a look at what business loan fees are, and what you should look out for in the loan terms.
What are the most common business loan fees?
While different loan types and different lenders may have different fees associated with their loan programs, there are several common business loan fees. There are four main types that lenders may charge for small business loans.
These four business loan fees are:
These are fees that underwriters of a small business loan will charge as part of their work. This can include verifying whatever documents you provided to the lender as part of the application process. This can be your bank statements, tax returns, credit reports, and other financial statements.
This is a fee that’s charged upfront by the lender for the work they do to process a new loan.
Much like a mortgage for a home, a small business loan may come with closing costs. These are fees that come along with tasks such as completing a business valuation or appraising your commercial real estate.
SBA loan guarantees
If you are applying for a business loan that is backed by the Small Business Administration, then you will have to pay a guarantee fee associated with that loan.
The SBA charges a fee of between 0.25% and 3.75% to the lender, which is based on the total amount of the loan that is being given. However, a lot of lenders will pass this business loan fee onto their borrowers.
How to get better loan fees?
When you apply for a small business loan, it’s important to not only choose the best loan for you but also the best lender that offers the best loan terms. This means you need to do your research to try to keep not only your interest rate low but the business loan fees low as well.
The first step in this process is to determine which small business loan type is the best fit for you. To do this, you’ll need to define why you are interested in obtaining the loan.
Is it so that you can grow the business?
Is it so you can have extra cash on hand in case of an emergency?
Is it so you can start a business?
Is it because you need help managing the day-to-day costs?
There are a lot of financial products you can choose from depending on your needs, you can get small business loans, microloans, lines of credit, credit cards, and so much more.
For example, a lot of lenders will shy away from giving out a small business loan to a company that has been in operation for less than a year. That’s because they often want to see good returns and stable income so they can feel more confident that you’ll be able to repay the loan.
Once you have determined why you need the loan, then you can choose the best type for you. And once you’ve done that, you can move onto examining all lenders that offer that type of financial product.
Ultimately, you should be looking for the best combination of loan type and lender that offers you the lowest business loan fees possible. Since you’ll already be paying interest on the money you are borrowing with your small business loan, you must avoid as many fees as possible so that the total cost of the loan is low.
Each lender should have clearly defined loan terms available for you to read before you proceed with the loan. If they do not have these available to you, or if you can’t find them easily, then this may be a red flag that the lender is either not trustworthy, or the type of loan may have high fees.
If you can’t find the loan terms easily but are still interested in the lender and business loan they offer, make sure to reach out to ask them what their business loan fees are. You should thoroughly examine what these fees are, when they’ll be charged and how they factor into your total loan cost.
Invest your money wisely
Most small business loan lenders will charge transaction fees that can be between 3% and 5% of the total loan amount. One nice perk to taking a small business loan, though, is you can save 35% by writing this expense off as your tax return, which is your effective tax rate.
But that doesn’t mean you should settle for any lender and any amount of business loan fees. Always look for the best terms and conditions.
In fact, at Camino Financial we offer great loan fees and are upfront about them. This means that not only will understanding the loan terms be easy, but you’ll also be reducing the total cost of the money you are borrowing.
That’s what makes us your best option when you are looking to obtain a small business loan.
At Camino Financial, we strive to serve a wide variety of small business customers through our loan programs and education resources. We strive to live up to our motto of “No Business Left Behind”.
If you need extra money to run your business or grow your business, apply for a business loan today with Camino Financial. With an easy application and approval process and no business loan fees, it’ll be the best way to help make you successful.