Getting approval for any business loan in Australia is an exciting moment. After all, as a business owner, you will have the money you require to utilise in your business. To operate your firm smoothly, you may need capital to buy new equipment, finance a second store opening, or cover your everyday business expenses.
However, as you might know, selecting and getting a business loan in Australia can be a difficult task. You should put some effort into looking for and applying for business finance, however before you move forward with any loan, it is imperative to familiarize yourself with any hidden loan fees that may be within the terms.
What are business loan fees?
When it comes to business loans, the business lenders want to make some profit while giving you the loan. As a result of this, many lenders often charge additional fees in addition to interest. Look for any hidden costs, as they will directly affect overall loan cost. But the question is, where do you find out about the charges? Well, if you take a closer look at the loan agreement, you may encounter different hidden charges. In addition to this, you can get to know about these from the lender’s website. Alternatively, you can ask the lender whether you need to pay for any hidden fees apart from interest or not. Any reputable lender will disclose all costs up front.
Different types of loan fees
As you might understand, irrespective of whether you are applying for bridging finance or any other business loan type, they may have various fees for business loans. So, it is crucial to know about the common charges you might encounter.
Application fee
Several business lenders offering online application-filling options however traditional lenders you will also get some loan providers who prefer in-person loan applications. Either option will allow you to lodge an application. The application fee is charged by the lenders as a cost for the lender to establish the loan, this fee should be disclosed at the time of application and when an offer for finance is made. Depending on the lender’s policy, this fee should not be paid upfront and will be included as part of the total cost of the loan. Before taking out a business loan, you should look at whether the loan provider requires any application fee or not to calculate the overall loan cost adequately.
Underwriting fee
While applying for business loans, such as bridging finance, you may encounter the term underwriting fee. This fee covers the work of loan underwriters, who ascertain and review all the personal and business data you deliver to loan providers or lenders.
Some lenders do not include this fee as it is a part of the origination fee. However, there are loan providers who might incorporate this fee as an additional or a standalone charge. Hence, while talking with the lender or going through the final loan agreement, you should look for it to avoid paying extra charges.
Origination fee
Origination fees are like an application fee the lender imposes on borrowers for administrative expenses. As a borrower, you can expect this fee to be a flat charge or a percentage of the loan principal and it may be added to the loan amount borrowed.
Service fee
Business loan lenders need to perform many activities during the lifetime of a loan, like keeping payment records and offering customer service and support. As a result, some lenders might charge an additional service fee on your loan.
Early repayment fee
As a borrower, if you have a steady income, you will want to repay your loan quickly to save a decent amount of money. But some lenders often charge an early repayment fees. It means they penalize you for early repayment as the loan is not going to go for the full term. That is why if your objective is to repay the loan early, you should check whether the lender has early repayment charges.
Late payment fee
In addition to early repayment charges, you may also have to pay for late loan repayments. As a borrower, you must pay off your loan timely. But if your payment is past due, the bridging finance lender might charge you late charges. These charges are flat fees or a percentage of the loan’s outstanding balance. This could be another hidden cost associated with business loans.
Discharge fee
You might need to pay a discharge fee when you apply for business loans in Australia. Discharge costs are composed of all the fees you will be required to pay to finalise the loan. Lenders should disclose discharge fees in their agreements and you should ensure there is no hidden charges in addition to this fee.
Drawdown fee
Though it is uncommon, if you take out a business line of credit, you may need to pay a drawdown fee. You should find out how much this fee is going to be when you borrow the funds for the first time.
Penalty interest and fees
Penalty interest is an additional interest charged by the business loan lender if you fail to make timely repayments.
Other fees include
- Administration fee
- Brokerage fee
- Line fee
- Referral fee
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So, by familiarizing yourself with all the loan fees that business lenders you can easily avoid any surprise expenses that may increase the total cost of the loan. Therefore, before proceeding further, you should review all the rates, charges, and terms and sign the loan agreement.