Typical Small Business Loan Fees
If you’re considering a small business loan, it’s important to familiarize yourself with the different types of small business loan fees. In addition to interest rates, fees can affect the final cost of a small business loan.
Lenders charge fees on small business loans to cover various costs, such as loan application and origination, check processing and underwriting, and you may also face late payment or prepayment fees. Which types of fees apply depend on the lender you use and the type of loan you get.
But knowing what to look out for can help when you’re comparing loans to minimize the overall cost of a small business loan.
Why Choose Small Business Loans?
No matter how great an idea is, in most cases it cannot become a real business without the working capital to bring it to fruition. If you’re not ready to pitch investors and don’t have the personal capital to bootstrap your business, you might want to find out how a small business loan can help you bring your business idea to life.
Of course, small business loans aren’t just for startups. Whether you want to hire more employees, buy more equipment or inventory, or simply expand your idea from your bedroom into a coworking space, small business loans can provide the financing to make it happen.
Some reasons why a small business loan might be right for you include:
- You want to build business credit that may qualify you for a larger loan in the future.
- You want to expand your business.
- You want to improve business efficiency with new equipment.
- You want to buy more inventory.
- You want to hire and train more employees.
Before applying for a small business loan, though, it’s important to make sure you have the financial foundation to manage your loan debt.
Small Business Loan Rates and Fees
Below are some common fees associated with small business loans.
Lenders incur certain fees when processing your application (for example, credit checks and property appraisals). This fee covers these costs and it will apply whether or not your application is approved.
Lenders charge an origination fee to cover their administrative costs, such as the phone calls, emails, and interviews required to complete a small business loan. The amount of this fee varies by lender.
Check Processing Fee
If you pay your loan by check, you may be charged for the time and labor required to process the check. You may want to keep this in mind when deciding how to pay your loan.
If you apply for a loan through the Small Business Administration (SBA), you may have to pay a guarantee fee. Although the SBA guarantees the loans, it does not originate the loans, so it typically assesses the cost of SBA loans in which it participates.
Like many loans, small business loans often have fees when you are past due. You’ll want to make sure you have a plan for paying back on time to avoid this fee.
The underwriting process can be tedious—your lender will need to sort through your business’ financials and review market research and historical trends. The underwriting fee covers the cost of performing this task. It can be charged as a percentage of the loan amount or as a flat fee.
Some lenders will charge you for paying off your loan too early. They could do this for a variety of reasons, but one could be because they take a loss on interest charges when you pay the loan principal before maturity. This is an important fee to be aware of when setting up your payment plan.
Additional Funding Options
If you’re not comfortable with these fees, there are other options to consider that might make it easier for you to finance your business.
Relatives and friends
Many people borrow money from family and friends when starting a business. Using these people as an initial investor can help you avoid business debt, which means you can wait to apply for a small business loan when you may need to borrow a larger amount.
However, doing business with loved ones can be risky. Relations may sour if things go south.
Many small businesses have been successfully funded through sites such as Kickstarter, GoFundMe, and Indiegogo. A great idea with a strong marketing plan can generate enough excitement and financial support to move things forward.
Keep in mind that crowdfunding sites are usually required to receive a certain percentage of funding. Also, getting your idea out there early on can run the risk of idea theft or plagiarism.
You can use credit cards as a quick way to raise funds for your business without the lengthy application process. However, interest rates can be high. Additionally, carrying a lot of credit card debt can affect your credit score and thus your chances of qualifying for a loan in the future.
Small business loans can have a variety of fees, including application fees, origination fees, underwriting fees, guarantee fees, and more. Some are avoidable, like bypassing check processing fees by choosing another payment method, or avoiding late fees by paying consistently and on time.
Which fees are charged ultimately depends on the lender and the type of loan, but fees can affect the final cost of a small business loan.
When exploring funding options, you might also consider a personal loan. For example, while you can’t use a personal loan for business expenses, it can help you consolidate high-interest credit card debt that you may have. SoFi Personal Loans offer low fixed interest rates and allow you to borrow up to $100,000.