Things to consider when comparing lenders
After you’ve looked at a few different lenders, you really have to get down to “brass tacks,” and think about the decision you’re about to make. You really need to look at a number of different factors about the line of credit, like the interest rate, the fees, whether the lender allows monthly repayment, and whether the loan is secured or not.
Some lenders charge a variable interest rate, whereas others charged a fixed interest rate. Keep in mind that you’re only going to be charged interest on the amount you actually borrow – not on the amount you’re initially approved for. Usually a line of credit will have one-off fees, of one sort or another. Some lines of credit allow for monthly repayment, whereas others – like OnDeck, will insist on a weekly, or daily, repayment. Some business lines of credit also require an asset as collateral.
How much does a business loan cost?
It’s extremely important you know how much the cost of your business loan will be. The costs of the loan can make a loan affordable, or super expensive. Costs can var widely between lenders, and also depends on factors like your business credit score, personal credit score, time in business, revenue, and more. Many people forget to include the fact that there are lender fees. They forget to include that in the APR cost. This is part of the cost of the loan every year you continue to carry the balance.
Interest rate is always biggest cost of your business term loan. It will depend on a wide array of factors. The major thing you need to think about is whether the loan has a fixed, or variable interest rate. Fixed interest rates remain the same over the life of the loan, whereas variable interest rates change with the market. Typically, lenders have a minimum base interest rate you’re charged.
If you offer collateral with your loan – this can also impact your final interest rate. Unsecured loans(loans with no collateral), have a higher interest rate than secured loans. Lenders are taking a higher risk when they are giving you an unsecured term loan. If you fail to repay the term loan, it has no collateral to recoup its losses. Your business credit score, is also an important factor. Some stringent lenders will look at your business plan, your revenue, the industry you’re in – the type of loan youre looking for, and many other factors.
What are typical business loan fees you should expect when looking at lenders?
Origination fee: Typically this is 1-5% of your loan amount. Lenders charge origination fees to cover the costs of processing the loan application. They are using this cost to pay for things like verifying your information, doing a credit check, and other administrative expenses. They typically take the origination fee out of your loan amount. When you calculate how much you will net from the loan you need to consider the origination fee.
Wire transfer fee: This is about $10-$20 per transfer
Late payment fee: This is between $10 to $35, or between 3-5% of the amount due. Lenders will charge SOME sort of late payment fee if a repayment is late, typically they offer a grace period as a courtesy.
NSF fee: If you setup autopay, and your account doesn’t have the money in it – this will be an issue, and you’ll be penalized. It’s typically the same as a lender’s late fee.
Prepayment penalty: If you pay the balance before the end of the term loan, or make early payments, you MAY be charged fees. Prepayment penalties vary widely. Some lenders don’t charge any at all. You should ask this question before working with a lender.