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Starting a business isn’t easy. Not only do you need a great idea to start off with, you also need to think of ways to have enough funding to make it happen.

Depending on your financial circumstances, a business loan may be an option for you. Our previous article covered the basics on what you should know about business loans, so today we’ll deep dive into the hidden fees and charges associated with these loans that you should look out for before you sign that dotted line.

 

Origination Fees

This fee is charged by the lender for the process of assessing and approving your loan application. It’s a time-consuming task for lenders to produce the necessary documentation to review and verify your eligibility, so they charge a certain percentage for their service based on your total loan amount to cover the time spent in setting up your loan.

 

External Fees

External fees, also called ‘third-party’ fees, are mainly specialised business loan fees that are associated with certain services. Lenders will sometimes require third-party services such as an appraiser to perform a valuation to determine your loan eligibility. As this fee varies case by case, make sure you understand what type of external service you are paying for.

 

Prepayment / Break Fees

The first thought that may come to mind when you get a loan is that you would want to find a way to pay it back as quickly as possible. However, as lenders want to earn the maximum amount of interest from your loan term, they might penalise you by charging a prepayment or break fee if you attempt to pay off your loan early. Always double check with your lender, broker or advisor to confirm the conditions.

 

Banking & Payment Fees

Check the payment options for your loan repayments, as lenders might have preferred methods of payment, for example, direct debit. Some lenders can charge high fees for certain payment methods. It also pays to check that you have sufficient funds in your nominated bank account to avoid being penalised a dishonour fee by both your bank and lender if the processing of your payment is unsuccessful.

 

Maintenance Fees

Any ongoing day-to-day management fees to keep your account or loan open can also add to the total cost of your loan. Remember to price it up and add in these recurring fees to understand the potential cost to hold the loan.

 

Amendment Fees

Want to make alterations to your loan agreement? A fee to cover the administrative costs of making the change may come as a shock to many business loan holders if you plan to extend the loan period or decrease the monthly payments. This is when business loan calculators come in handy to help you do the sums to work out a repayment option to suit your business needs.

 

As we always say, research thoroughly before you apply for any type of credit product to avoid unpleasant surprises. Read the terms and conditions of your business loan and ask your lender any questions you need clarification on to ensure you don’t get caught out by the fine print.

If you are ready to shop around for a business loan, our partner Valiant Finance can help you start comparing loans for your small business today!