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Read the Fine Print: Five Loan Fees all Business Should Understand

Loans often come with many types of fees and can be one of a business owner’s biggest tribulations as there are often added costs when applying, getting approved and even when paying off the loan before the end of the set term.

According to business.com, there are several loan fees (depending on the lender) that will be charged under the terms of the loan agreement. They apply to many types of loans (including real estate development loans, commercial building loans and short-term business loans) and listed below are four common types of loan fees that every business owner should be aware of.

1. Origination fees

This fee is part of the common application fee where lenders and brokers charge for processing paperwork and getting approval in motion. They are usually based on a percentage of the loan amount.

2. Underwriting Fees

Yes, some lenders will charge a fee for the underwriting process. What this means is a loan applicant will be charged a fee (which is, again, usually based on a percentage of the loan amount) for determining cash flow, streams of revenue, collateral, a business’ credit score, equity, to name a few. The fee may vary from lender to lender.

3. Pre-Payment Fees or Pre-Payment Clause

While it may a great feeling (and a relief) to pay off a loan early, there are commonly fees associated with this. So, if a loan is paid off before the end of the term, some lenders may request that the client pay a percentage of the remaining interest for the time period of the loan or sometimes a flat fee is charged.

4. Late Payment Fees

This is almost a given and the amount (and guidelines) may vary from lender to lender. For instance, some will charge a percentage fee of the missed monthly payment or a flat fee. Nonetheless, it’s always best to discuss the process and guidelines with your lender.

5. Collection fees

If a missed payment (or payments) is required to be paid after a certain amount of time (which is usually outlined in the loan agreement), borrowers may be charged an overdue or collection fee – plus the late payment fee – as  many lenders source outside collection agencies or firms to collect the fees.

These are just a few of the basic fees associated with loans and they are vital to understand in order to save money in the long and short term. While fees can sometimes be negotiated or waved under certain conditions, it’s always best to review the specifics with your lender before signing the dotted line.

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