Funding Glossary: Common Fees Associated With Business Financing

If we’ve said it once, we’ve said it a million times, knowledge is power. This is especially true when it comes to stepping into the world of business financing.  When trying to access the funds that you need to grow your business, determining the overall cost of capital is essential. Without doing this you may find yourself caught off guard and landing in a predicament where you have bit off a little more than you can chew.

Business loans can come with various fees in addition to the interest rate. These fees help lenders cover administrative costs, mitigate risks, and generate revenue. The specific fees associated with business loans can vary based on the lender, the type of loan, and the borrower's creditworthiness.

This is where Backd comes in, we believe that funding should be straightforward with no hidden costs, that’s why we always disclose any fees associated with accessing the capital that you need, but not all lenders are as transparent. Let’s take a look at some of the common fees that can be associated with business financing, as well as how Backd can help your business grow without massively increasing the cost of accessing capital. 

What Fees Can Be Associated With Business Financing?

Origination Fee: This is a one-time fee charged by the lender for processing and underwriting the loan. It's usually a percentage of the loan amount and is deducted from the loan proceeds.

Application Fee: Some lenders charge a fee simply for processing your loan application, regardless of whether you're approved or not.

Processing Fee: Similar to an application fee, this fee covers the administrative costs of processing your loan application.

Underwriting Fee: This fee covers the cost of evaluating your creditworthiness and determining the terms of the loan.

Documentation Fee: Lenders might charge a fee for preparing and processing the loan documentation.

Prepayment Penalty: Some loans have prepayment penalties if you pay off the loan early. This fee is intended to compensate the lender for the interest they would have earned if you had kept the loan for the full term.

Late Payment Fee: If you miss a payment deadline, the lender may charge a late payment fee.

Insufficient Funds Fee: If a scheduled payment fails due to insufficient funds in your account, the lender might charge you a fee.

Annual Fee: Some business loans, particularly lines of credit, come with an annual fee for maintaining access to the credit line.

Guarantee Fee: If your loan is backed by a government agency (such as the Small Business Administration in the US), there might be a fee associated with the guarantee.

Facility Fee: This fee is often associated with lines of credit and covers the cost of making the credit facility available to you.

Service Fee: Lenders might charge a service fee for managing your loan account, sending statements, and providing customer support.

Closing Fee: For larger loans or more complex transactions, there could be a fee associated with the loan closing process.

Legal and Appraisal Fees: In some cases, you might be responsible for covering the costs of legal work, appraisals, and other due diligence associated with the loan.

Wire Transfer Fee: If the loan funds are transferred via wire, there might be a fee for this service.

Renewal or Extension Fee: If you extend or renew the term of your loan, some lenders might charge a fee for the additional paperwork and processing involved.

Commitment Fee: Common with lines of credit, this fee is charged to maintain your access to the credit line, even if you don't use it.

Closing Costs: For real estate or mortgage-related loans, there can be various closing costs, which include fees for property appraisal, title search, title insurance, and other related services.

Draw Fee: If you're taking out funds in multiple installments from a credit line or construction loan, some lenders might charge a fee for each draw.

Exit Fee: In some cases, lenders might charge a fee when you repay the loan in full, either at the end of the term or before the term ends.

SBA Guarantee Fee: If you're obtaining a loan backed by the Small Business Administration (SBA), there's usually a guarantee fee to cover the cost of the government's loan guarantee.

Processing or Servicing Fee: Some lenders charge ongoing fees to cover the cost of managing and servicing the loan throughout its term.

Early Termination Fee: Similar to a prepayment penalty, this fee might be charged if you decide to terminate the loan agreement before the agreed-upon term.

Consultation or Advisory Fees: If you receive professional advice or consultation from the lender during the loan application process, they might charge a fee for these services.

Currency Conversion Fees: If you're dealing with international transactions or foreign lenders, currency conversion fees might apply.

Amendment Fee: If you request changes to the terms of your loan agreement, such as adjusting the repayment schedule or modifying other terms, the lender might charge an amendment fee.

Annual Review Fee: For credit lines or certain types of loans, lenders may charge a fee for conducting an annual review of your financials and business performance.

Third-Party Fees: Some loans might involve third-party services such as appraisers, inspectors, or notaries. The costs of these services might be passed on to you.

Disbursement Fees: If your loan involves multiple disbursements (such as a construction loan), there might be fees associated with each disbursement.

Collateral Management Fee: If your loan is secured by collateral (assets you provide as security), the lender might charge a fee for managing and evaluating the collateral.

Audit or Inspection Fees: For larger loans or complex projects, lenders might conduct audits or inspections to ensure the funds are being used as intended. There could be fees associated with these assessments.

Environmental Assessment Fees: Particularly for real estate loans, there might be fees for conducting environmental assessments to identify potential contamination or hazards on the property.

Membership Fees: In some cases, you might need to become a member of a credit union or similar organization to access certain types of business loans. Membership fees could apply.

Risk Assessment Fee: Lenders might charge a fee for assessing the risk associated with your loan application, especially if your business operates in a high-risk industry.

Insurance Premiums: Some loans, particularly those secured by assets, might require you to maintain specific insurance coverage. Premiums for this insurance could be an additional cost.

Document Retrieval Fee: If you need copies of loan-related documents, the lender might charge a fee to retrieve and provide those documents.

Not all lenders will have the same fees, and some will be more transparent about the overall cost of capital than others. It's crucial to carefully review all the terms, conditions, and associated fees before committing to a business loan. If anything is unclear, don't hesitate to ask the lender for clarification. Additionally, consider seeking advice from financial professionals or legal experts to ensure you're fully aware of the financial implications of the loan and its associated fees.

Transparent Funding with Backd

When it comes to funding and growing your business, you need a financial partner that you can trust. That’s where Backd comes in, we were founded on being a transparent financial resource for small business owners. 

Whether you need a Working Capital Advance of up to $2,000,000 or a Business Line of Credit of up to $750,000 Backd is here to fund your growth. Our dedicated funding experts care about your business and work to ensure that you know of any fees that may be associated. Backd also lends ethically and will never try to push an option that your business will struggle to pay back. 

Don’t wait to get the funding that your business needs, apply with Backd today!