Commercial Business Loan, Small Business Startup Loan

By: Ryan Mapes

Commercial business loan, how do you avoid the hidden costs?

As an entrepreneur, you may feel like the search for funding is never ending. Perhaps you are considering closing a loan in the near future. Beware that hidden loan costs often make a loan package appear much less attractive than you originally thought. Whether or not you are in that process of getting a commercial business loan now, it is important to know what costs can be avoided.

The first step in the process of avoiding exorbitant or hidden fees is simple: do some research. Be sure that the lender you are considering is reputable, and do not hesitate to ask for references. If you are still wary of a lender, avoid them altogether.

Also make sure you know your credit position and clear up any mistakes. Taking the time to check this before finding out too late that your credit report prevented you from getting a commercial business loan is well worth the effort. Once you have a good handle on your credit position, do not be afraid to shop around. Negotiation can and does happen, especially if lenders are competing for your business.

Even if you are pressed for money, you could end up getting yourself into an even worse situation if you rush into the commercial business loan process without sufficient preparation. Get a lawyer to review your documents if you want to be sure that you are not getting a bad deal.

So what exactly should you watch for carefully in the paperwork? Start by reading every word in the contract. If something looks unfamiliar or you do not understand, be sure to ask for clarification. Look out for extra fees that had not been discussed previously. Many times insurance companies make a large part of their profit with extra fees that could be avoided, and unscrupulous companies may be tempted to add more fees in the contract hoping you will not notice.

Most additional fees come in three types: broker and lender fees, third party fees, and government fees.

Broker/Lender fees: These are the fees charged by your broker that they may be most willing to negotiate. Administrative fees, processing fees, and document preparation fees all fall in this category. If the competition for your business is high, you may be able to negotiate these fees to your advantage.

Third party fees: Lenders sometimes pass on the fees for services like notarizing, title work, appraisals, and inspections to you. Overnight delivery fees and courier fees can add up as well. All of these fees are negotiable.

Government fees: Any fees required by the government with a commercial business loan transaction are non-negotiable, and you do not have a choice in paying them if you want the loan.

These fees underscore the importance of not assuming anything about the terms of a deal. Take only what is stated explicitly in the contract as your agreement. For example, you should be aware of large pre-payment penalty fees (sometimes called redemption fees) or refinancing packages at lower rates—sometimes refinancing is actually more expensive in the end.

Also, be sure to know the frequency of interest calculation. Daily interest will add much more quickly than monthly interest, for example.

GUARANTEED FEES

Some lenders will provide you a good faith estimate of fees before the underwriting process, but this leaves you open to more fees later. Doing business with a lender that guarantees their fees is the easiest way to make sure you do not get hit with lots of unexpected costs when you finalize a commercial business loan. It will also give you an immediate, accurate picture of what the loan will really cost.