| There can be more to a bank business loan than | | | | type of appraisal or environment issue. |
| making interest and principal payments. Your firm | | | | Like attorney fees, appraisal or environment |
| may get a great rate on its new credit line or | | | | evaluation fees are almost always for the account |
| term loan but you may cry on the way home | | | | of the borrower. Perhaps the best result one can |
| when you discover the hidden fees and charges. | | | | expect is to have these fees capped or have the |
| Even seasoned borrowers can be caught off | | | | lender split the amount in some way. |
| guard. Borrowing costs can be boosted by | | | | Unanticipated audit expense |
| thousands of dollars and the effective rate on the | | | | Many banks reserve the right to audit borrowers |
| loan increased by many basis points as a result of | | | | or to send bank personnel in for inspections. An |
| these hidden charges. | | | | audit may be required to review accounting |
| Here are some of the fees and charges that can | | | | procedures or to monitor collections, inventory or |
| increase your firm's costs on bank loans: | | | | another aspect of your firm's operation. Also, |
| Commitment fees | | | | some banks require outside audits by CPA firms |
| Many banks charge commitment fees of | | | | in connection with extending credit. Any of these |
| ½% - 1% or more to issue a commitment | | | | scenarios can create significant expense and |
| to lend money. The fee is calculated on the | | | | involve a substantial time commitment for your |
| available credit amount. Commitment fees | | | | firm. |
| significantly increase the effective rate on | | | | Before signing, review your loan agreement |
| outstanding loans. | | | | carefully to identify any audit or bank inspection |
| These fees can be negotiated. If your firm has a | | | | requirement. If your bank requires an audit or |
| strong credit profile or if the competition among | | | | inspection that you did not anticipate, try to get it |
| banks in your area is fierce, ask for a lower | | | | eliminated or try to negotiate limits. You may be |
| commitment fee or ask to have it waived. | | | | able to get a less-stringent requirement or to |
| Non-use fees | | | | negotiate a less-expensive alternative to the audit |
| These fees may be charged in lieu of or in | | | | or inspection required by your bank. |
| addition to commitment fees. Non-use fees usually | | | | If all else fails, try to get audit or inspection fees |
| range from ¼% to ½% of the | | | | capped. |
| unused credit facility. Although these fees are less | | | | Late charges |
| onerous than commitment fees, they also | | | | Charges for making late payments to your bank |
| increase the effective borrowing rate. | | | | are generally in your control. These charges can |
| As with a commitment fee, you may be able to | | | | be onerous and can add significantly to your firm's |
| get the non-use fee reduced or waived if your | | | | borrowing cost. It is not unusual to see banks |
| firm has a strong credit profile or if the banking | | | | tack 300 basis points onto a customer's |
| environment is very competitive. | | | | borrowing rate for delinquent payments. |
| Restructuring fees | | | | While it is worthwhile during the negotiating stage |
| When your firm has reason to restructure an | | | | of the loan to ask for a lower late- payment |
| existing loan, you can expect your bank to charge | | | | charge, the best solution is to try to avoid these |
| a restructuring fee for the privilege. For example, | | | | charges. If you can, try to get the late-payment |
| if your company has reason to convert a | | | | rate knocked down to 75 to 150 basis points |
| short-term loan into a long-term one, it will | | | | above your borrowing rate. |
| probably be charged for this restructure. | | | | Expiry of or Failure to Get a Rate-lock |
| These fees can range from ½% to 2% or | | | | In a stable rate environment, many banks are |
| more plus any bank legal fees or out-of-pocket | | | | willing to lock the rate on fixed-rate credit |
| expenses. If your firm has been a long-term bank | | | | transactions. Rate-locks protect the borrower |
| customer in good standing, you may be able to | | | | from adverse rate movements prior to closing. In |
| negotiate or eliminate the fee. But don't expect to | | | | most cases, rates can be held up to 60 days. |
| eliminate the bank's attorney fees and | | | | Rate-locks are not uncommon in real estate loans |
| out-of-pocket expenses. | | | | and equipment installment loans. |
| Bank attorney fees | | | | If your firm is negotiating a fixed-rate loan, try to |
| Attorney fees usually come into play when the | | | | negotiate a rate-lock. You may pay loan interest |
| bank uses an outside law firm. Making matters | | | | that is a tad higher, but a locked rate can |
| worse, many outside bank attorneys require a | | | | eliminate an unpleasant interest rate swing. |
| borrower to hire an outside attorney to issue an | | | | Once you have locked the rate, try to stay within |
| opinion letter covering the transaction. | | | | the holding period for closing the transaction. Most |
| Usually, only the strongest borrowers in very | | | | banks will eagerly and aggressively pass on rate |
| competitive banking situations can totally eliminate | | | | hikes in a rising rate market, if you fail to comply. |
| paying bank attorney fees. However, if your firm | | | | Many hidden bank fees and charges can be |
| is a valued customer, your bank may be willing to | | | | reduced or eliminated if you plan ahead and are |
| have these fees capped or reduced. Often banks | | | | prepared to negotiate. You are in your strongest |
| have some leverage with their law firms to get a | | | | negotiating position before your bank issues a |
| discount. | | | | commitment letter and before you sign the credit |
| Appraisal/environmental evaluation fees | | | | agreement. Always read commitment letters and |
| These fees are charged on many asset-backed | | | | loan agreements carefully. Look for hidden fees, |
| loans. They usually involve bringing in an outside | | | | hidden charges and unexpected requirements. You |
| expert to evaluate equipment or real estate. | | | | can also ask your bank to prepare a separate list |
| These fees can be significant, depending on the | | | | highlighting all potential fees and charges. |