Hidden Bank Loan Charges That Would Make a Pick-Pocket Envious

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 the way home when you discover the hidden fees and charges.

Even seasoned borrowers can be caught off guard. Borrowing costs can be boosted by thousands of dollars and the effective rate on the loan increased by many basis points as a result of these hidden charges.

Here are some of the 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 the available credit amount. Commitment fees significantly increase the effective rate on outstanding loans.

These fees can be negotiated. If your firm has a strong credit profile or if the 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 the unused credit facility. Although these fees are less onerous than commitment fees, they also increase the effective borrowing rate.

As with a commitment fee, you may be able to get the non-use fee reduced or waived if your firm has a strong credit profile or if the 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 the 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 the fee. But don't expect to eliminate the bank's attorney fees and out-of-pocket expenses.

Bank attorney fees

Attorney fees usually come into play when the 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 the transaction.

Usually, only the 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 the type of appraisal or environment issue.

Like attorney fees, appraisal or environment evaluation fees are almost always for the account of the borrower. Perhaps the best result one can expect is to have these fees capped or have the lender split the amount in some way.

Unanticipated audit expense

Many banks reserve the right to audit borrowers or to send bank personnel in for inspections. An audit may be required to review accounting procedures or to monitor collections, inventory or another aspect of your firm's operation. Also, some banks require outside audits by CPA firms in connection with extending credit. Any of these scenarios can create significant expense and involve a substantial time commitment for your firm.

Before signing, review your loan agreement carefully to identify any audit or bank inspection requirement. If your bank requires an audit or inspection that you did not anticipate, try to get it eliminated or try to negotiate limits. You may be able to get a less-stringent requirement or to negotiate a less-expensive alternative to the audit or inspection required by your bank.

If all else fails, try to get audit or inspection fees capped.

Late charges

Charges for making late payments to your bank are generally in your control. These charges can be onerous and can add significantly to your firm's borrowing cost. It is not unusual to see banks tack 300 basis points onto a customer's borrowing rate for delinquent payments.

While it is worthwhile during the negotiating stage of the loan to ask for a lower late- payment charge, the best solution is to try to avoid these charges. If you can, try to get the late-payment rate knocked down to 75 to 150 basis points above your borrowing rate.

Expiry of or Failure to Get a Rate-lock

In a stable rate environment, many banks are willing to lock the rate on fixed-rate credit transactions. Rate-locks protect the borrower from adverse rate movements prior to closing. In most cases, rates can be held up to 60 days. Rate-locks are not uncommon in real estate loans and equipment installment loans.

If your firm is negotiating a fixed-rate loan, try to negotiate a rate-lock. You may pay loan interest that is a tad higher, but a locked rate can eliminate an unpleasant interest rate swing.

Once you have locked the rate, try to stay within the holding period for closing the transaction. Most banks will eagerly and aggressively pass on rate hikes in a rising rate market, if you fail to comply.

Many hidden bank fees and charges can be reduced or eliminated if you plan ahead and are prepared to negotiate. You are in your strongest negotiating position before your bank issues a commitment letter and before you sign the credit agreement. Always read commitment letters and loan agreements carefully. Look for hidden fees, hidden charges and unexpected requirements. You can also ask your bank to prepare a separate list highlighting all potential fees and charges.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ("LTI"). He is responsible for overseeing the company's marketing and financing efforts. One of the co-founders of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.

Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at http://www.ltileasing.com.

---

An Overview of Getting a Homeowner Loan

Should you be in the market for a homeowner loan, you might find yourself wondering exactly how to go about finding the loan solution that you're looking... Read More

What is a Car Loan?

A car loan is a type of credit offered by a bank or other financial lender for the specific purpose of buying a vehicle. Car loans allow... Read More

Small Business Loans Can Help You Write Your Success Story

Scene one: you are sitting on your office desk surrounded with files and work overload, you are thoroughly frustrated. You work hard and get paid. But somewhere... Read More

Shopping for a Personal Loan

Most Internet users are now extremely comfortable using the Internet to research and buy items that we need, mainly because we know that e-tailers probably have the... Read More

The Best Day of The Week For Payday Loans

Whether your payday arrives every Friday or every other Friday, payday is definitely the highlight of the week. How to spend your payday depends on your goals.... Read More

A Look at the Origins of Online Lending

You might find yourself wondering about the origins of online lending, and how it has become the major industry that it has evolved into during recent years.The... Read More

125% Equity Home Loans

If you are a homeowner in need of a home equity loan but you have not yet built up any equity in your home, don't despair. A... Read More

Need a Personal Loan? Have Poor Credit? See if a Payday Loan Would Work For Your Needs

Poor credit and a financial emergency don't seem to mix well. However, a payday loan may work for you. Since online payday loan companies do not require... Read More

Getting the Best Auto Loan Rates

Getting a good auto loan rate is not luck, but rather a skill that you must learn. There are good auto loan rates available if you know... Read More

A Brief Look at Homeowner Loans

Homeowner loans are useful ways to get the things that you need? a loan based on the value of your house, yours to use in whichever way... Read More

Loan Officer Marketing - The Power of Positioning

How do you build a marketing strategy that can have real estate agents hunting for your services? Realtors® are bombarded everyday with a continuous stream of marketing... Read More

Information About Debt Consolidation Loans with Bad Credit

Finding debt consolidation loans with bad credit can be quite a task? after all, a lot of lenders don't want to take a risk on someone who... Read More

Become A Smarter Borrower

With a nation that has in the region of a Trillion pounds of debt one could say we are serial borrowers. Before you consider borrowing money it... Read More

Guide to Unsecured Loans

Outlined below is a guide to unsecured loans. It will give you a better understanding of what an unsecured loan is as well as what to consider... Read More

Second Mortgage Loans

A second mortgage is a loan that is secured by the equity in your home. When you obtain a second mortgage loan the lender will place a... Read More

Why Choose a Homeowner Loan?

Outlined below are some of the reasons for choosing a Homeowner Loan. A Homeowner Loan is a loan secured against your home. They are also known as... Read More

Loan Options for College Students

You just finished high school and realize you have two months to work and save up for your very expensive post secondary education. Your parents are willing... Read More

Finding and Getting Bad Credit Loans

If you don't know where to turn for bad credit loans, you're not alone. Thousands of people struggle with their finances month after month, weighted down by... Read More

Online Loans: The Easy Way to Apply

The internet is a great place to find the right lender for obtaining a loan. One can apply online by filling out a simple application and submitting... Read More

A Brief History of Loans

No one can say for certain where the history of loans began? it's likely that people have been practicing lending and borrowing for as long as there... Read More

About Personal Loans

What are personal loans? They are unsecured loans that a borrower obtains for various purposes. This type of loan is often used to consolidate outstanding debt into... Read More

What is a Home Improvement Loan?

A UK Home Improvement Loan Can Give You The Home You Want.Looking to increase the value of your property? A Home improvement Loan could be the easiest... Read More

Facts You Should Know About Types of Loans

When you set out to borrow, you often come across terms like unsecured loans, revolving loans, adjustable rate loans, etc. While these terms are more or less... Read More

Everything You Need to Know About a Secured Loan

If you're not familiar with the term, a secured loan is a loan which requires a security deposit of some kind (also known as collateral) to protect... Read More

How to Find a Good UK Secured Homeowner Loan

If you're looking for a UK secured homeowner loan, you might not know where to turn.How can you insure that you're getting the best interest rates and... Read More

Why Choose a Personal Loan?

Are you wondering why choose a personal loan? One of the main reasons for choosing a Personal loan is the flexibility. There are a variety of Personal... Read More