Typical Rates & Fees Associated with Business Loans
When acquiring a business loan, one can expect to pay different
rates and fees based upon the years the business has been in
operation, the owner's personal credit history, the business's
credit history, and whether or not the loan is secured or
unsecured. If the loans are guaranteed, whether or not they are
by the government or some other agency can affect the rates as
well.
Interest Rates are controlled by usury laws. A lender can safely
charge a business up to 10% interest per year and not violate
any usury laws. Depending on the type of lender you seek,
personal or commercial, this may not always hold true. There are
different usury laws governing personal lenders and those that
are protected by the Federal Government (commercial banks,
credit unions, savings and loans). Typical lenders charge
between 6-7%, however, as stated earlier; financial security in
the business and the owner play an important role in
establishing interest rates. Often times commercial banks offer
fixed interest rates, but more often than not, the rates are
flexible after a given number of years. Government loans are
offered to small businesses that meet certain criteria. These
loans are offered at the approximate US Treasury note rate of +
1.7% (fixed rate). Other agencies and specially funded business
loans offer rates that are decided by special committees.
Usually they are lower because these loans are only available to
certain business owners.
Fees come in different increments based upon the institution you
choose to borrow money from. Typical fees include application
fees that can run up to $500, although, some institutions and
loan companies do not charge any application fee. Closing Costs
which usually run within 1-2% of the original amount borrowed.
Common commercial loans that are under $500,000 are usually at
least 2%. Loans above $500,000 usually have fees ranging from
1.5-1.75%. Other fees that one might encounter when borrowing
money for his or her business are: appraisal fees, attorney
fees, and environmental assessments. These fees may or may not
be included in the closing costs. If not included, these fees
may mount up to several thousand dollars. It's important to ask
your financial institution which fees are included in the final
closing costs. Government loans and loans that are offered
through agencies that cater to certain small business owners
offer fees that are based upon the project size. Most are
usually at least 3%, some agencies charge the exact amount of
all filing fees and an additional 1-2% of the original loan
amount.
Many individuals choose to refinance their residence as means
for a business loan. Often times these loans can be acquired
much easier than a business only loan. Interest rates are often
lower and fixed for longer amounts of time, as well. Fees
usually range below 2% and can be included in the loan. Having
equity in your home may enable business owners to borrow money
with lesser interest rates and fees. However, it is a risky
plan. If your payments are not made on-time and in full each
month, your home may be sold to cover the loan.