Commercial lending refers to the practice of lending money to businesses for the purpose of financing various business-related expenses, such as purchasing inventory, expanding operations, or purchasing real estate. When a business seeks a commercial loan, there are a number of costs that they need to consider. These costs can vary depending on the lender and the terms of the loan, but they can include:
1. Interest: The most obvious cost associated with commercial lending is the interest rate charged on the loan. Interest rates can vary widely depending on the lender and the creditworthiness of the borrower. Higher credit scores typically result in lower interest rates, while lower credit scores may result in higher interest rates.
2. Origination fees: Some lenders charge an origination fee for processing and approving a loan. This fee is typically a percentage of the total loan amount and is paid upfront.
3. Appraisals for commercial real estate properties are paid for by the client in advance of getting funded
4. Surveys are paid by the client in advance of having funds advanced
5. Closing costs: Closing costs are fees associated with finalizing the loan, such as attorney fees, title insurance, and appraisal fees. These costs are typically paid upfront as well.
6. Business valuations for refinancing a business or for mergers and acquisitions
7. Legal fees to draft contracts etc. are paid by the borrower.
8. Prepayment penalties: Some commercial loans come with prepayment penalties, which means that the borrower will be charged a fee if they pay off the loan early. Prepayment penalties are designed to protect the lender from losing out on the interest they would have earned if the borrower had kept the loan for the full term.
9. Late fees: If the borrower misses a payment or makes a payment after the due date, they may be charged a late fee. Late fees can vary depending on the lender and the terms of the loan.
10. Default fees: If the borrower defaults on the loan (fails to make the required payments), they may be charged default fees. These fees can include collection costs and legal fees.
It is important for businesses to carefully consider all of these costs when seeking a commercial loan. By understanding the various fees and charges associated with commercial lending, businesses can make informed decisions about which lender and loan terms are the best fit for their needs
