What Are the Costs and Fees for a Small Business Loan?

Understanding the costs associated with borrowing money for a small business involves looking at all the rates and fees associated with taking on debt. An important first step is to familiarize yourself with the terms related to these lending costs.


Understanding key small business loan terms


What is the loan principal?

Loan principal is the initial amount you have borrowed for your small business loan request and must be paid back, plus any interest.


What is the loan interest rate?

The loan interest rate is the cost to borrow your loan amount in addition to the loan principal. Some lenders may communicate the borrowing rate as a daily percentage rate or simply as an "interest rate." Ask to have the interest rate provided in Annual Percentage Rate (APR) so that you can easily compare your options.


What is a closing fee for a business loan?

The loan closing fee is the cost to close the loan deal – or open a loan account – with the entity you decide to borrow with. This fee may be a set dollar amount or a percentage of the total loan amount.


Do small business loans have annual or one-time fees?

Some loan types have one-time or yearly fees for maintaining your account. Loan fees will vary and are based on the type of loan. For example, it's common to have an annual fee on a high-rewards business credit card or line of credit. However, there could also be promotions or seasonal specials that waive these fees either one time or for the life of the relationship.

In addition to understanding lending terms, knowing what to expect from the process can help make sure you get the right loan and lending experience for your business. A little preparation can help you feel comfortable with the lending process and know what questions to ask lenders.


Other factors that may impact the cost of your small business funding


In addition to loan costs, other factors like the application process, timing and right loan product can influence your decision-making process.

  1. What's the loan application process?

    Get a sense of how complex your application may be, starting with if it’s a paper or digital application and how many documents are required. In many cases one to several years of business and personal tax returns may be required in addition to interim financial statements. Learn more about what banks look for when they review your business loan request.

  2. When do you need to receive the funds?

    Are you willing to wait longer to receive funds in exchange for better terms? Sometimes lenders that are willing to provide the funds more quickly also charge higher rates and fees. If there is flexibility in waiting to obtain the funds for up to 30-60 days, this may allow you to shop around and find a lender that is willing to provide lower rates and fees

  3. How will you use the money?

    Do you need funding all at once to make a major purchase? Or do you want to fund lower occasional or regular expenses you can pay off periodically? If you need lower regular or occasional funding, a small business credit card or line of credit may be a good option for your business. A small business loan can be a good choice when you need larger funds up front

Talking through your financing needs with a small business lending professional can help you understand the costs associated with various types of financing and help you find the right loan to meet your needs.

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This article is based on information available in February 2021. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.