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 home 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.
Author-Bio: John Williams is the business
loans blogger at http://businessloans.blogspot.com
He reviews business loans and interprets complicated financial data into
simple to understand language.
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