On The Money

Types of Fees Attached to Small Business Loans

Pile of moneyThe fees attached to a loan always depends on the lender, the borrower’s qualifications, and the terms of the loan. Consequently, this makes it difficult to compare loans from different providers. However, most lenders will give an annual percentage rate for their investments. This rate allows borrowers to get an idea of the yearly cost of the loan.
When applying for small business loans in Bloomington, many people have a hard time trying to understand the fees they see. Not only are there mysterious entries in the annual percentage rates, but sometimes there are also additional fees that were never included. While a borrower can avoid extra charges by paying on time, it is difficult to work around other entries, so any borrower has to know these three must-have fees in a loan agreement:

Origination fee

This fee covers the approval and processing of a loan and how much they invest in verifying your information. Most lenders have the origination fee as a flat figure, but others make it a percentage of the loan. In other cases, the cost is included in the total loan.

Service fee

The lender will perform different activities related to the loan over its duration. They will manage and administrate it, perform customer service duties and sometimes send the bill. These services come at a monthly fee although some lenders may ask a one-time payment.

Prepayment penalty fee

If a borrower chooses a prepayment in a loan balance, the lender charges a penalty. The penalty is included in the contract to help protect the lender from losing interest due to early payment. Sometimes this penalty is hidden in the fine print, so a borrower needs to be vigilant.
Of course, there will be other fees when a borrower applies for a loan, whether its personal or a small business loan. Go through the fine print and be sure you understand everything before you sign any contract.