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