The first step to choosing the right loan for your small business is to understand the fees that are associated. With so many online financing options out there for your business, it can be difficult to know what to expect ahead of time. By navigating and accounting for all fees, this will save your business from being blindsided by hidden costs later on in the process.
What Types of Fees are Associated with Online Loans?
Annual Percentage Rate (APR)
This summarizes your total borrowing cost into a single number, including the interest rate, application fees, legal fees, broker fees, closing costs, origination fees, and more. This is sometimes known as the all-inclusive cost. The APR is always higher than the simple interest rate that is quoted because it tends to be all-inclusive in nature. An APR is also an annualized rate meaning that it’s spread out over each year of the loan.
Factors that affect a borrower’s APR include one’s credit history, the value of the loan compared to the value of the company, and one’s debt-to-income ratio. Lenders will take into consideration your current and projected business revenues, along with your personal and business credit score, to determine the likelihood that you can repay your debt obligations on time.
It’s important to note that only some financing products carry a true APR. Others, like lines of credit or cash advances won’t be quoted with APRs.
The interest rate for a business loan depends on your qualifications, background, the loan-period, and the type of loan you select. Online loans can have interest rates ranging from 7% to over 100% due to the ease of service and other advantages. Online and alternative lenders also have reduced eligibility criteria, which makes it easier for non-traditional businesses to gain access to loans.
This fee is usually charged to cover the cost of reviewing your loan application and is not refunded if you are not approved. This is sometimes categorized together with the processing fee.
Also referred to as the closing fee, this is charged for processing and disbursing the loan. This may be a flat fee or a percentage of the loan amount. If ’’s quoted as a percentage, it is usually around 1 to 6% of the loan amount.
Service and Maintenance Fees
This seeks to cover the variety of services that your lender might perform for administrative purposes. Service fees might be billed monthly or take on the form of a one-time fee. Particularly with products like lines of credit, you need to keep an eye on these kinds of fees as they are quite common.
If you were referred to a lender through a lending platform or website, you may be charged a referral fee. This is to cover the cost of a lending platform connecting applicants with their financing partners. This will depend on whether the online lender you’re working with is a direct funder or follows a marketplace model instead. Marketplace platforms will usually tack this fee on whereas direct lenders won’t.
Wire Transfer Fees
Lenders commonly wire the money from a loan to your bank account. This fee, commonly a flat fee, is charged to cover the cost of the wire transfer, and ranges from $10-$20 per transfer. Usually this is based on your bank’s transfer fees or policies.
When you prepay on a loan balance, the lender faces the risk of losing out on paid interest arising from this early payment. Some organizations protect against this loss by charging a fee if the loan is paid back early. Keep an eye out for these fees as you complete your application and get a funding offer.
Late Payment Fee
This is charged when a loan payment that was due is paid late. This may be a flat fee, or a percentage of the outstanding balance. In addition, this also my impact your personal or business credit score. It is important to you are vigilant about paying back loans, as late fees can be large and extremely detrimental, if not fatal for your business.
Kabbage Line of Credit Fees
Kabbage’s APR rates for their line of credit product range from 24% to 99%, and vary depending upon your business’s credentials.
Kabbage lines of credit typically have monthly payments with no prepayment penalties, according to their website. They, however, do charge a comprehensive monthly fee for every month you still have an outstanding balance. This can range from 1.5% up to 10%, depending on a number of business performance factors. This fee in particular makes the total cost of Kabbage’s line of credit much greater than it might initially appear.
Late Payment Fee
Kabbage’s late Payment Fees may range between $10-$100.
OnDeck Loan Fees
OnDeck’s APR ranges from 9% to 99%, depending on your criteria as a borrower. For lines of credit, the APR ranges from 14% to 40%.
With OnDeck, there is an Origination Fee that is not included in the APR. The costs are as follows:
- 1st loan: 2.5-4% of loan amount
- 2nd loan: 1.25-3% of loan amount
- 3rd+ loan: 0-3% of loan amount
All of these fees depend on OnDeck’s underwriting process and can vary depending on a variety of criteria that aren’t always apparent to the business owner.
For OnDeck loans, they will execute a prepayment discount. If you do choose to pay off the loan early, OnDeck will give you a 25% discount on your outstanding interest. Even if you decide to prepay and are not carrying a balance for the rest of the term, you will still have to pay 75% of the interest.
Funding Circle Loan Fees
For Funding Circle, the interest rate will lie between 4.99% and 27.79%, based off of the duration of the loan and the strength of your credit profile.
This can range from 0.99% to 6.99% and is based on the strength of your credit profile and is deducted from your total loan, meaning that you do not pay this if you are not approved for a loan.
None. This allows you to repay your loan early if desired. You only have to pay interest for the time you borrow.
Late Payment Fee
If you pay late on monthly payments, you will be charged a fee that is 5% of the missed payment. This fee is added to the original monthly payment and withdrawn from your account automatically.
How to Choose a Loan that is Right for You?
When navigating through the variety of online business loans that are available to your company, make sure to do thorough research about the company and its loan history to identify any potential hidden fees and costs. The last thing you want to do is sign a loan before you understand the scope of it.
There are an abundance of business loan options that are available on the web, so shop around for the loan that is most suitable for your business. This includes factors such as the nature of your business and the number of the lender’s eligibility criteria your business is able to fulfill, while comparing the various fees to see which loan would be most aptly suitable for your situation. Business loans are not a one-size-fits-all solution, and searching for the right one can be a tedious process. But if you know what to expect up front you can be sure you’ll find the right option for your business.