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 residence 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.