Common Loan Fees: What Small Business Owners Need To Know In 2023

by Rino Abdulah Mei 12, 2023 Posting Komentar

An Explanation of Small Business Loans [Infographic] from lerablog.org

Introduction

Small business owners often need financial assistance to grow their operations. Loans provide a convenient way to finance expansion, but they come with various fees that borrowers must understand. In this article, we will explore some of the common loan fees that small business owners need to know in 2023.

Origination Fees

Origination fees are charged by lenders for processing a loan application. They range from 1% to 8% of the total loan amount. These fees are usually subtracted from the loan amount, so borrowers should plan accordingly. It's essential to compare origination fees from different lenders before choosing one.

Application Fees

Some lenders charge a fee for submitting a loan application. These fees are usually non-refundable and can range from $50 to $500. It's important to ask about application fees upfront to avoid surprises.

Prepayment Penalties

Prepayment penalties are charged when a borrower pays off the loan before the due date. The penalty can be a percentage of the remaining balance or a flat fee. Not all lenders charge prepayment penalties, so it's important to ask before signing a loan agreement.

Late Payment Fees

Late payment fees are charged when a borrower misses a payment or pays after the due date. These fees can range from $25 to $50 or more. It's important to make loan payments on time to avoid late fees.

Underwriting Fees

Underwriting fees are charged by lenders for evaluating a loan application. The fees can range from $500 to $5,000 or more. These fees are usually subtracted from the loan amount, so borrowers should plan accordingly.

Guarantee Fees

Guarantee fees are charged by lenders for loans backed by the Small Business Administration (SBA). The fees can range from 1% to 4% of the guaranteed portion of the loan. These fees are usually subtracted from the loan amount, so borrowers should plan accordingly.

Collateral Fees

Collateral fees are charged by lenders for securing a loan with collateral. The fees can vary depending on the type of collateral and the loan amount. It's important to ask about collateral fees upfront to avoid surprises.

Third-Party Fees

Third-party fees are charged by outside parties, such as appraisers and attorneys, for services related to the loan. These fees can vary depending on the service provider and the loan amount. It's important to ask about third-party fees upfront to avoid surprises.

Conclusion

Understanding loan fees is essential for small business owners looking to finance their operations. By knowing what fees to expect, borrowers can make informed decisions and avoid surprises. When shopping for a loan, it's important to compare fees from different lenders to find the best deal.