There may be more to a bank business loan than making interest and principal payments will be. Your company can get a great rate on its new line of credit or loan, but you can cry on the way home when you discover the hidden fees and charges.
Even seasoned borrowers can be caught off guard. Borrowing costs can be thousands of dollars and the effective interest rate on the loan by many basis points as a result of these hidden fees are increased increased.
Here are some of the fees and charges, the company can increase your cost of bank loans:
Commitment fees
Many banks charge commitment fees % - 1% or more, a commitment to lend money issue. The fee is calculated on the available credit amount. Commitment fees significantly increase the effective interest rate on loans.
These fees are negotiable. If your company has a strong credit profile or if competition among banks in your area is hard to ask for a lower commitment fee or charge that he refrained.
Non-use fees
These fees can be charged in addition to or instead of commitment fees. Non-use fees usually range from % to % of the unused line of credit. Although these fees are less onerous than commitment fees are deferred, but also increase the effective borrowing rate.
As with a commitment fee, you may be able to be reduced to non-use fee or waived if your company has a strong credit profile and the highly competitive banking environment.
Restructuring Charges
If your firm reason to restructure an existing loan has, you can expect your bank to a restructuring charge for the privilege to be calculated. For example, if your firm has reason to convert a short-term loans into long-term, it is well placed for this restructuring charge.
These fees can be from % to 2% or more, plus attorneys' fees bank or out-of-pocket expenses. If your company has a long-term bank customer in good standing, you may be able to negotiate or eliminate the fee. But do not expect the bank to attorneys' fees and out-of-pocket costs to eliminate.
Attorney's fees of the Bank
Attorney's fees usually come into play if the bank uses an external law firm. To make matters worse, many outside bank attorneys require a borrower to hire an external lawyer to issue an opinion letter for the transaction.
As a rule, only the strongest borrowers in very competitive banking situations totally eliminate paying bank attorney fees. However, if your company is a valued customer, your bank may be willing to have these fees capped or reduced. Often, the banks have got some leverage with their law firms to a discount.
Assessment / environmental assessment fees
These fees are charged on many asset-backed loans. They usually involve bringing in an outside expert to equipment or property to be assessed. These fees can be significant, depending on the type of assessment or an environmental issue.
As the attorney's fees, appraisal fees or assessment environment is almost always for the account of the borrower. Perhaps the best outcome can be expected, is that these fees capped or have the lender split the amount in a certain way.
Unforeseen costs audit
Many banks reserve the right to verify the borrower or to send to bank staff for inspections. An audit may be required to verify accounts or collections, inventory or any other aspect of your company to oversee the operation. Also, some banks require outside audits by CPA firms in connection with the loan. Each of these scenarios can involve substantial costs and a substantial time commitment to your company.
Before you sign, check your loan contract carefully to identify any bank examination or inspection requirements. If your bank requires an audit or inspection that you did not expect, try to eliminate it or try to negotiate boundaries. You may be able to get a less stringent requirement or need to negotiate a less expensive alternative to the audit or inspection of your bank.
If all else fails, try to audit or inspection fees capped.
Late fees
The fees for late payments to your bank are usually within your control. These fees can be stressful and can significantly leverage your company's costs. It is not uncommon to see banks tack 300 basis points to a customer borrowing rate on arrears.
While it is worthwhile to ask during the negotiation phase of the loan to a lower fee for late payment, the best solution is to try to avoid these costs. If you can, try to cast the late payment rate to the ground by 75 to 150 basis points above the target rate.
Expires or to obtain a rate-lock
In a stable interest rate environment, many banks are willing to lock the interest rate for fixed-interest loan business. Rate-locks protect the borrower against adverse exchange rate fluctuations prior to closing. In most cases, up to 60 days instead. Rate locks are not in real estate loans and equipment installment loans rarity.
If your company is negotiating a fixed rate loan is to try to negotiate a rate lock. You can pay interest on the loan, which is somewhat higher, but a locked rate can eliminate an unpleasant interest rate swing.
Once the rate is locked, try to stay within the holding period for the completion of the transaction. Most banks will eagerly and aggressively pass on rate hikes in a rising market rate, if you fail to comply.
Many hidden bank fees and charges can be reduced or eliminated if you plan ahead and are willing to negotiate. You're in your strongest negotiating position before your bank statement and a commitment before you sign the loan agreement are. Carefully read more letters of commitment and loan agreements. Look for hidden fees, hidden fees and unexpected demands. You can also ask your bank to have a separate list, highlight all the possible fees and charges to prepare.
George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ("LTI"). He is responsible for overseeing the marketing and financing efforts. One of the co-founder of LTI, has involved Mr. Parker in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of numerous articles relating to equipment financing.
Headquartered in Wilton, Connecticut, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth companies and later-stage, venture capital backed companies. For more information please visit somekeyword.
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