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.

---

Bad Credit Personal Loans ? Pertinent Pedestal for a Financial Resumption

In the arena of loan borrowing, there is hardly an... Read More

Easy Cash Advance - Payday Loans Online are Quick

Cash advances have become quicker to process with online payday... Read More

Military Loan and Military Loans

Military loans are made available to active servicemen and retirees... Read More

What is a Title Loan?

A title loan is a loan of money secured by... Read More

Be Wary of Guaranteeing a Loan

You need to be wary of guaranteeing a loan. What... Read More

Cash Loans: The Good, the Bad, and the Debt-Free

Happiness is what they're selling. Relief from the crushing weight... Read More

Free Money Saving Auto and Home Loan Tips

Free Auto Loan TipsThe following tips should help increase your... Read More

Secured Personal Loans: Constructive Structuring for Financial Success

Credit relationships in a social system form an intricate web... Read More

Auto Loans: Top 5 Tips For The Best Rate

You've got your eye on that shiny new Lexus -... Read More

Are Interest Rates Up, Up and Away?

Interest rates have been at their lowest levels in over... Read More

Bridging the Gap ? through Bridging Loans

You were on your regular walk with your wife, and... Read More

User Guide to Payday Loan Terminologies

Are you approaching towards a payday loan cash advance? Is... Read More

A Brief Look At Various Types of Loans Available

A Brief Look At Loans "Innovative financial packaging" is how... Read More

First Time Buyer Mortgage ?Key to your First Home

Living in a rented apartment since long. Ever thought of... Read More

Risk It With A Bridging Loan?

How many times have you been casually going about your... Read More

What is a Homeowner Loan?

A Homeowner Loan is a way of using the equity... Read More

Payday Loan and Cash Advance Lenders Online - How To Compare Them

When searching for a payday loan company online to get... Read More

A Guide to Finding Home Owner Loans

If you're in the process of trying to find home... Read More

Taking the Time to Find a Homeowner Loan UK

Trying to find a good homeowner loan UK can end... Read More

How to Get a Business Loan in Five Steps

Need funds to startup or expand your business? Follow these... Read More

What is a Student Loan?

Not everyone is aware of what is a student loan?... Read More

Want a Cheaper Finance for Your Vehicle? Try Secured Automobile Loans

The usual modus operandi in most automobile purchases is as... Read More

Should I Get a Consolidation Loan?

If you've got a really unmanageable amount of credit card... Read More

How to Finance a Small Business

Confused by how to finance a small business? One key... Read More

A Guide to Finding Cheap Loans

Finding cheap loans isn't always easy? it seems like every... Read More

Finding a Loan With Bad Credit

No matter what your credit history is the simple fact... Read More

Secured Loans Tips

Here are some useful secured loans tips. Secured loans enable... Read More

Alternative Ways to Avoid Payday Loan

If you spend more than you earn on a regular... Read More

Do You Qualify for a Loan?

Like most people, you will probably wait until submitting a... Read More

What You Should Know About Home Equity Loans

A home equity loan is essentially a type of second... Read More

Five Things To Check Out When You Apply For a Payday Loan

Are you thinking of going in for a payday loan... Read More

Short Term Solutions to Cash Flow Problems

If you're in a crunch for money, either because of... Read More

Filling Out The Loan Application

1. Property information. The application begins with a section on... Read More