Compare Small Business Loans
When you apply for a business loan from a bank or alternative lender, it can be overwhelming to understand all the different fees you may be charged. Below, we cover some of the most common fees you’ll encounter when taking out a business loan.
What are small business loan fees
Whether you’re seeking capital for a new startup or need funding to support an existing business, borrowing money typically comes at a cost. On top of what you borrow (also known as the principal amount), lenders generally charge interest. This is the cost you’re charged to borrow the money and it’s generally expressed as a percentage.
It isn’t uncommon for lenders to throw in additional fees on top of the principal and interest. These fees can vary widely depending on the lender and loan type, but they’re designed to cover different costs associated with making and servicing your loan.
Types of business loan fees
Business loan fees are commonplace among banks and alternative lenders. We've compiled a list of the major types of fees associated with business loan and financing products.
This is a fee charged for processing and approving the loan application, which includes verifying a borrower’s information. Origination fees may be charged as a flat fee (e.g. $350) or a percentage of the loan amount. If it’s charged as a percentage-based fee, it typically ranges anywhere from 1% and 10% of the loan amount. Sometimes the origination fee is included in the total loan amount, meaning the borrower is essentially borrowing the fee and repaying it with interest.
Service or processing fees
Over the lifetime of a loan, your lender will perform a variety of activities, such as customer service or billing, to manage and administrate the loan. A service or processing fee is used to cover the cost of these expenses. Service fees are frequently billed monthly or according to the loan repayment schedule, but some lenders may only charge a one-time service fee. Service fees are usually charged as a percentage of payment amount (if billed regularly) or of the total loan amount (if one time).
SBA loans, provided by the Small Business Administration, charge an annual service fee of 0.49% for loan balances ranging from $350,001 to $1 million. For loans with greater amounts, that fee bumps up to 0.55%
Prepayment penalties are charged to borrowers who pay off their loan ahead of schedule. The fee may be included in the loan contract as a way to protect the lender from the interest fees they’re losing due to early repayment. Many lenders, such as Kabbage and Funding Circle, do not charge prepayment fees.
If you apply for a business loan through a lending platform or marketplace, you may be charged a referral fee for the lending platform "referring" your application to a lender. For example, SmartBiz is an online lending platform that offers business loans. SmartBiz does not lend to borrowers directly, but instead connects applicants with partnering banks. Since SmartBiz refers applicants to one of its partners, they charge a 3% referral fee for term loans.
SBA loan fees
If you apply for an SBA loan, there are several types of loan fees you might anticipate encountering.
This is a fee charged by the Small Business Administration for all 7(a) loans it guarantees (the SBA will guarantee loans up to 85% of the loan amount). All SBA lenders are required to pay this fee (if applicable), and lenders have the option of passing this fee onto their borrowers. This upfront guarantee fee is based on the loan amount and repayment terms. It can range anywhere from 0% for veterans to up to 3.75% regular borrowers. For loans with terms that exceed one year, there is no guarantee fee for loans of $350,000 or less. However, there’s a fee of 2.77% of the guaranteed portion for loans ranging from $350,001 to $700,000. The fee jumps to 3.27% for larger loans up to $1 million. For short-term business loans, a guarantee fee of 0.25% of the guaranteed portion is applied to loans that are greater than $350,000 if the loan term is 12 months or less.
Packaging fees are often charged when a loan provider organizes your documents and prepares your loan application. If you are applying for an SBA loan through a lending platform, this fee is frequently standard, as the lending platform helps you prepare your loan application before it is sent to the SBA for review. Funding Circle, for instance, tacks on a packaging fee.
Non-sufficient funds (NSF) and unsuccessful payment fee
These fees are assessed if a loan payment is unsuccessful — this normally happens when the borrower’s bank account does not have enough money to cover the amount that is being withdrawn. NSF and unsuccessful payment fees are generally flat fees, ranging from $6 to $35 per unsuccessful payment.
Late payment fee
This fee is self-explanatory — it’s charged when a loan payment is made past its due date. A late payment fee may be either a flat fee, frequently around $10 to $39, or a percentage of the payment amount or outstanding balance (5%).
Wire transfer fee
Commonly a flat fee, a wire transfer fee is charged when a borrower uses a wire transfer to make a loan payment. The fee can vary but usually doesn’t exceed $20 per incoming domestic wire transfer.
Payment by check fee
This fee is charged when a borrower makes a loan payment by check. It’s usually charged as a flat fee, generally around $10 to $20 per payment by check.
Other common fees
Loan fees come in all shapes and sizes. You may see charges for documentation fees, invoice factoring fees or other miscellaneous weekly or monthly fees that are unique to certain lenders. Other fees may go by different names but are actually the same as one of the charges listed above. The best way to understand each fee associated with a loan is to thoroughly read the loan offer and contract. If you have questions, don’t be afraid to reach out to lenders for clarification.
Why fees matter
Depending on the lender, the terms of the loan and your qualifications as a borrower, each loan you apply for may have a different set of fees. Normally, this would make comparing loan offers difficult. However, most lenders will provide an annual percentage rate (APR) for their loan products. APRs provide a complete picture of the annual cost of the loan to the borrower, including the interest rate and fees charged, such as origination and/or packaging fees.
It's important to note that when lenders calculate an APR, they assume borrowers make payments on time and in full — meaning late payment fees, NSF fees and similar charges are typically not included. With that said, APRs make it easy for borrowers to make apples-to-apples comparisons between loan offers and are a good starting point for evaluating a loan offer.
Another important consideration to make is when and how you will be charged additional fees not included in the APR. For example, a bank will not charge a late payment fee unless you make a late payment. The best way to avoid these additional fees is to make your loan payments on time, in full and in the method preferred by your lender, for example, through autopay.