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Not So Fast – That Loan Could Cost You More Than You Think

So you’ve crunched your numbers, taken a good long look at your strategic plan and decided it’s time to get a small business loan to move your business to the next level.

You figure $50K should do it and have calculated the payments down to the penny. You’re sure it’s something your cash flow can absorb until the new things created by this investment can start working for you.

Hmmm… Not so fast. There’s more to a loan than the principal and interest. You need to make sure you’re prepared for all those “extras” before you move forward.

It would be easy to hop into a loan deal if you’re desperate for funds to grow your business. But that could be a foolhardy venture if you don’t know what you’re paying for.

If you’re working with a bank, you will incur many fees that relate to handling your loan from application to closing. On the other hand, if your loan is being arranged through a broker there may be added fees for their services.

Here are five “extra” fees that could be included in your next loan.

1. Guarantee Fee

If your loan is guaranteed by the Small Business Administration (SBA), it will include a guarantee fee to your lender. The amount of the fee depends on the loans maturity rate and the dollar amount guaranteed, not the loan amount. The lender has the option to absorb the fee or pass it on to the borrower.

2. Origination Fee

All that paperwork you fill out during the application process to make sure you’re eligible for the loan has to be analyzed and moved through the banking system. It costs money for financial institutions to make these loans. So with some loans, it’s likely you’ll incur a fee just to originate the loan. This fee is normally expressed as a percent of the loan amount.

3. Loan Packaging Fee

It’s important you prepare a complete package of detailed information about your business that includes financial statements, financial projections, and a clear explanation about how you plan to use the loan proceeds. Often there will be a fee for helping you prepare this package for review by the lender. Rates vary for this type of service.

4. Service Fees

Over the life of your loan, there are many actions your lender will need to take (billing, payments, customer service) and those will typically get rolled into service fees. Service fees are often billed to you over the duration of the loan on a monthly or quarterly basis.

5. Closing Costs

You loan has to be signed for so you can get your check. All of those papers have to be wrapped up in a tidy package for final processing at the bank. A representative normally handles this and fees will be passed on to you.

It’s important you understand all of the fees that will a) be included in your loan, b) require payment at loan closing, or c) be billed on an ongoing basis. Many of them will be rolled into your loan and ultimately increase the amount you repay to the lender.

You also need to make sure you understand the terms of the loan and whether there are any penalties for certain actions like early repayment or missed payments. You can’t be too informed when it comes to this so make sure you don’t just glance at any paperwork that includes these items.

The bottom line when it comes to getting a loan is to know before you owe and be thorough when reviewing your loan documents so you can take that money and put it to work for your business.

Denise O'Berry

Denise O'Berry

Contributor at Fundera
Denise O'Berry is a small business contributor for Fundera and author of “Small Business Cash Flow: Strategies for Making Your Business a Financial Success”. A small business owner since 1996, Denise has worked with hundreds of small business owners over the years and is inspired by their enthusiasm and ability to overcome huge obstacles. She provides small business tools, tips and advice to small business owners around the world on her blog at
Denise O'Berry