There can be more to a bank business loan than making interest and principal payments. Your firm may get a great rate on its new credit line or term loan but you may cry on
way home when you discover hidden fees and charges.Even seasoned borrowers can be caught off guard. Borrowing costs can be boosted by thousands of dollars and effective rate on loan increased by many basis points as a result of these hidden charges.
Here are some of fees and charges that can increase your firm’s costs on bank loans:
Commitment fees
Many banks charge commitment fees of ½% - 1% or more to issue a commitment to lend money. The fee is calculated on available credit amount. Commitment fees significantly increase effective rate on outstanding loans.
These fees can be negotiated. If your firm has a strong credit profile or if competition among banks in your area is fierce, ask for a lower commitment fee or ask to have it waived.
Non-use fees
These fees may be charged in lieu of or in addition to commitment fees. Non-use fees usually range from ¼% to ½% of unused credit facility. Although these fees are less onerous than commitment fees, they also increase effective borrowing rate.
As with a commitment fee, you may be able to get non-use fee reduced or waived if your firm has a strong credit profile or if banking environment is very competitive.
Restructuring fees
When your firm has reason to restructure an existing loan, you can expect your bank to charge a restructuring fee for privilege. For example, if your company has reason to convert a short-term loan into a long-term one, it will probably be charged for this restructure.
These fees can range from ½% to 2% or more plus any bank legal fees or out-of-pocket expenses. If your firm has been a long-term bank customer in good standing, you may be able to negotiate or eliminate fee. But don’t expect to eliminate bank’s attorney fees and out-of-pocket expenses.
Bank attorney fees
Attorney fees usually come into play when bank uses an outside law firm. Making matters worst, many outside bank attorneys require a borrower to hire an outside attorney to issue an opinion letter covering transaction.
Usually, only strongest borrowers in very competitive banking situations can totally eliminate paying bank attorney fees. However, if your firm is a valued customer, your bank may be willing to have these fees capped or reduced. Often banks have some leverage with their law firms to get a discount.
Appraisal/environmental evaluation fees
These fees are charged on many asset-backed loans. They usually involve bringing in an outside expert to evaluate equipment or real estate. These fees can be significant, depending on type of appraisal or environment issue.
Like attorney fees, appraisal or environment evaluation fees are almost always for account of borrower. Perhaps best result one can expect is to have these fees capped or have lender split amount in some way.
