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Hidden Fees on Commercial Loan Rates – the Lowdown

Most businesses, however large or small, will need to take out a loan at some point – whether to expand the business, help maintain a steady cash flow or to get through times of economic uncertainty.  However, any business owner who arranges a loan may be surprised to find that there are fees to pay that are not disclosed upfront that can make the loan difficult to pay back, causing problems that could have been avoided if the loan had been a little more transparent.  This is why checking the small print is essential, especially when dealing with funding.  Today we’re going to take a look at some of the “hidden fees” that you need to look out for when applying for funding so that you can be sure that the loan you take out is affordable and won’t have a negative impact on your business in the coming months and years, leading you into debt or even leading your business to become insolvent.

The Arrangement Fee – this is a one-off admin charge to cover the costs association with arranging the loan and can vary between 1% and 10% of the total quote.  Many business owners are caught out by this payment (which is required at the start of the contract) as it may not be stipulated in the quote.

Survey or Audit Charge – this charge covers the costs of evaluating your assets and balance sheets to see if your company qualifies for financial assistance.  While no financial institution will approve a loan without conducting an audit, many do not disclose the costs (usually between £500 and £800) in their quote.  Furthermore, audits may have to be carried out quarterly, bi-annually or annually, meaning a recurring expense that you need to budget for.

The Take-on Fee (Retro Commission) – this is a one-off charge designed to recover payments owed to your business from outstanding customer invoices.  If work/goods has been invoiced and payment not received, financial assistance in the form of invoice finance may be considered.  The take-on fee covers the costs of the loan provider and usually costs 2% of the total value of invoices.

Clearing House Automated Payment System (CHAPS) Fees – cover the cost of withdrawing money against an invoice and are charged every time an invoice is processed.  The typical cost is between £20 and £30 per transaction.

Trust Account Charges – Every time an invoice is paid and the money goes into the loan provider’s account, you’re charged a handling fee before the balance is transferred to your business account.  Trust account charges are usually 0.2% of the amount received.  Although the charges are relatively low, if you have a large backlog of unpaid invoices, it can result in your financial assistance proving more expensive.

Charge Per Invoice Schedule – this fee has to be paid to the financial institution when funds are paid on the same day that an invoice is processed and costs 1% of the total invoice amount (per transaction).