Are Processing Fees Applied to Business Loans?

Applying for a business loan is one of the ways that a business owner will opt to expand their business. While applying for a business loan, it is equally important to also be aware of the charges like processing fees, foreclosure charges, etc, while availing a loan.

There might be times where financial institutions will not inform about the charges applied on the business loan or hidden fees, these charges might be non-refundable. It is always advised to talk clearly about the charges with the bank or NBFC loan officer while applying for a business loan.

In this article, we take a closer look at whether there are any processing fees charged on business loans.

What are the Costs Associated with a Business Loan?

There are several costs applied while processing a business loan, like processing fees, Insurance fees, Application charges, etc. So knowing these costs and planning accordingly while applying for a business loan is very important.

The following are some charges applied while applying for a business loan:

Interest Rates:

This is one of the most common charges applied with an added percentage while availing of a business loan. The interest rate may be fixed, invariable during the term of the credit, or it may be floating, with the rate of interest changing through the period of the loan on account of factors depending on the market trend.

Processing fees:

Processing fees refer to charges that a lender takes upfront on a business loan for the service of processing the application to make it profitable. They are also known as administration, service, or origination fees.

Application Fees:

Some lenders charge to process your application alone, whether or not your loan gets approved. It covers the cost of pulling your credit, verifying information, and processing.

Prepayment Penalties:

If any business owner wants to repay the loan amount and close it earlier, then the borrower can choose the option to foreclose the loan amount. While foreclosing the loan amount the lender will add some foreclosure charges as the lender is losing the interest amount charged over the loan.

Late Payment Fees:

If the borrower is unable to pay the EMIs or Installments on time, then the lender will charge late payment charges and some percentage of cheque bounce charges with some added penalties. Sometimes the financial institution will not inform the borrower about these charges.

So it is important that the borrower should ask maximum questions about the business loan charges while availing of a loan.

What is a Processing Fee on Business Loans?

The processing fee is an amount charged by the lender to meet some costs involved in processing your loan application. This could also be the fee paid to satisfy part of the administration cost of handling the paperwork and verifying your information before the loan is approved and disbursed, etc. These charges may also cover other expenses to the lender, what they are bearing while the business owner is availing of a collateral-free business loan.

Why Do Lenders Charge Processing Fees?

Lenders charge processing fees as a way to recover the costs associated with considering and sanctioning your loan application. Each time you apply for the credit facility, a lot of back-office work is considered by the lender to approve or reject your loan proposal. These processing fees also cover charges to the lenders like credit score checks, doorstep customer service, etc.

Conclusion

Every business loan has processing fees to cover several charges that your lender has to go through during the consideration and sanctioning of the business loan application. It is very important to understand the full cost involved with loan processing, the rate of interest, and any other penalty that may be applied. So that, the right decisions are made, before the loan amount gets disbursed.

There are lots of scenarios where applying for business loans from NBFCs are better option for many business owners. NBFCs, for the most part, provide more flexible terms, quicker approval, and specialized services in comparison to traditional banks. They also have easier eligibility criteria, hence making access to the required funds much easier for small and medium-sized businesses.

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Sometimes the NBFCs also provide waivers of processing fees during festival times to attract and encourage customers to apply for a business loan with them. With these advantages, an NBFC can be a great option when you need a business loan that fulfills to your every need.