Easy access to capital is the lifeline that nurtures businesses. A business loan can provide capital to meet various business-related requirements. Be it delay in payments by debtors, plans to grow your business, purchasing additional inventory, or dealing with the cash flow issues because of the lag between payables and receivables. But before you apply for a business loan from a financial institution, it is prudent to understand the various fees and charges associated with it.
The processing fee is the amount charged by the lender for processing the loan application of a borrower. It is a one-time charge and is deducted from the loan amount at the time of loan disbursal. It includes checking your CIBIL score, loan approval charges, and administrative charges. The processing fee amount varies from lender to lender.
A business loan interest rate is the amount charged by the lender to the borrower as a percentage of the principal loan amount. An interest rate can be charged on both, monthly and annual basis. The interest rate is typically calculated on an annual basis and is called APR (Annual Percentage Rate).
An Equated Monthly Installment is the fixed amount of money paid by the borrower on a specific date of each month during the tenure of a loan. It is advisable to ensure that you keep your account funded on or before the due date of EMI deduction. Any delay or non-payment of EMI on the due date negatively impacts your CIBIL score. The penalty levied for the delay in EMI repayment is called late payment charges and can be different for different lenders. Non-payment of EMI could be because of signature mismatch or insufficient funds in the account.
A business loan fee charged by the lender for providing online services to the borrower is called an online convenience fee. The online convenience fee is a nominal amount paid for online services such as obtaining a login ID and password for the loan account. Most financial institutions these days have apps that can be used to keep track of your business loan and these apps are available for free.
To get a business loan, a borrower has to submit the required documentation to the lender. The business loan fees charged by the lender for the services of the employee handling the paperwork is called documentation fee or document processing charges. This fee varies based on the lender and the type of business loan applied.
A business loan infuses the required capital in your business which can be used for addressing the cashflow concerns and growing your existing business. Let’s suppose your business does well and starts generating a steady revenue stream. You might think of being debt-free by repaying the pending loan amount at one go instead of monthly EMIs till the completion of the loan tenure. A penalty or a fee charged by the lender for the early closure of the business loan is called a prepayment fee or foreclosure fee.
Listed below are some simple steps for getting a business loan
As a business owner, you are constantly looking for ways to grow your business. A business loan is a financial tool that can help you with the funds required to expand your business. But before you apply for a business loan with a financial institution, you should be aware of the various business loan fees and charges Refer to the points above to understand the charges/fees taken at the time of loan processing by the financial institutions.