Hidden Bank Loan Charges That Would Make a Pick-Pocket Envious

There can be more to a bank business loan than making interest and principal payments. Your firm may get a great rate on its new credit line or term loan but you may cry on the way home when you discover the hidden fees and charges.

Even seasoned borrowers can be caught off guard. Borrowing costs can be boosted by thousands of dollars and the effective rate on the loan increased by many basis points as a result of these hidden charges.

Here are some of the fees and charges that can increase your firm's costs on bank loans:

Commitment fees

Many banks charge commitment fees of ½% - 1% or more to issue a commitment to lend money. The fee is calculated on the available credit amount. Commitment fees significantly increase the effective rate on outstanding loans.

These fees can be negotiated. If your firm has a strong credit profile or if the competition among banks in your area is fierce, ask for a lower commitment fee or ask to have it waived.

Non-use fees

These fees may be charged in lieu of or in addition to commitment fees. Non-use fees usually range from ¼% to ½% of the unused credit facility. Although these fees are less onerous than commitment fees, they also increase the effective borrowing rate.

As with a commitment fee, you may be able to get the non-use fee reduced or waived if your firm has a strong credit profile or if the banking environment is very competitive.

Restructuring fees

When your firm has reason to restructure an existing loan, you can expect your bank to charge a restructuring fee for the privilege. For example, if your company has reason to convert a short-term loan into a long-term one, it will probably be charged for this restructure.

These fees can range from ½% to 2% or more plus any bank legal fees or out-of-pocket expenses. If your firm has been a long-term bank customer in good standing, you may be able to negotiate or eliminate the fee. But don't expect to eliminate the bank's attorney fees and out-of-pocket expenses.

Bank attorney fees

Attorney fees usually come into play when the bank uses an outside law firm. Making matters worst, many outside bank attorneys require a borrower to hire an outside attorney to issue an opinion letter covering the transaction.

Usually, only the strongest borrowers in very competitive banking situations can totally eliminate paying bank attorney fees. However, if your firm is a valued customer, your bank may be willing to have these fees capped or reduced. Often banks have some leverage with their law firms to get a discount.

Appraisal/environmental evaluation fees

These fees are charged on many asset-backed loans. They usually involve bringing in an outside expert to evaluate equipment or real estate. These fees can be significant, depending on the type of appraisal or environment issue.

Like attorney fees, appraisal or environment evaluation fees are almost always for the account of the borrower. Perhaps the best result one can expect is to have these fees capped or have the lender split the amount in some way.

Unanticipated audit expense

Many banks reserve the right to audit borrowers or to send bank personnel in for inspections. An audit may be required to review accounting procedures or to monitor collections, inventory or another aspect of your firm's operation. Also, some banks require outside audits by CPA firms in connection with extending credit. Any of these scenarios can create significant expense and involve a substantial time commitment for your firm.

Before signing, review your loan agreement carefully to identify any audit or bank inspection requirement. If your bank requires an audit or inspection that you did not anticipate, try to get it eliminated or try to negotiate limits. You may be able to get a less-stringent requirement or to negotiate a less-expensive alternative to the audit or inspection required by your bank.

If all else fails, try to get audit or inspection fees capped.

Late charges

Charges for making late payments to your bank are generally in your control. These charges can be onerous and can add significantly to your firm's borrowing cost. It is not unusual to see banks tack 300 basis points onto a customer's borrowing rate for delinquent payments.

While it is worthwhile during the negotiating stage of the loan to ask for a lower late- payment charge, the best solution is to try to avoid these charges. If you can, try to get the late-payment rate knocked down to 75 to 150 basis points above your borrowing rate.

Expiry of or Failure to Get a Rate-lock

In a stable rate environment, many banks are willing to lock the rate on fixed-rate credit transactions. Rate-locks protect the borrower from adverse rate movements prior to closing. In most cases, rates can be held up to 60 days. Rate-locks are not uncommon in real estate loans and equipment installment loans.

If your firm is negotiating a fixed-rate loan, try to negotiate a rate-lock. You may pay loan interest that is a tad higher, but a locked rate can eliminate an unpleasant interest rate swing.

Once you have locked the rate, try to stay within the holding period for closing the transaction. Most banks will eagerly and aggressively pass on rate hikes in a rising rate market, if you fail to comply.

Many hidden bank fees and charges can be reduced or eliminated if you plan ahead and are prepared to negotiate. You are in your strongest negotiating position before your bank issues a commitment letter and before you sign the credit agreement. Always read commitment letters and loan agreements carefully. Look for hidden fees, hidden charges and unexpected requirements. You can also ask your bank to prepare a separate list highlighting all potential fees and charges.

George Parker is a Director and Executive Vice President of Leasing Technologies International, Inc. ("LTI"). He is responsible for overseeing the company's marketing and financing efforts. One of the co-founders of LTI, Mr. Parker has been involved in secured lending and equipment financing for over twenty years. Mr. Parker is an industry leader, frequent panelist and author of several articles pertaining to equipment financing.

Headquartered in Wilton, CT, LTI is a leasing firm specializing nationally in direct equipment financing and vendor leasing programs for emerging growth and later-stage, venture capital backed companies. More information about LTI is available at http://www.ltileasing.com.

AFP
Lehman Weighs Split to Rid Itself of Troubling Loans
New York Times, United States - 40 minutes ago
In 1988, Mellon Bank, weighed down by bad real estate loans, created Grant Street National Bank to offload troubled loans. Mellon sold 191 loans, ...
Stocks: A Terrible Thursday BusinessWeek
The Great Financial Bubble Scam: How Wall Street Plays Average ... The People's Voice
This slowdown has a long way to go yet – so just look forward to ... Times Online
The Associated Press - Wall Street Journalall 1,000 news articles

This is Money
Kamco in talks to buy non-performing loans
Financial Times, UK - 8 hours ago
Kamco plans to spend about Won1,000bn ($886m) on US non-performing loans, including its possible purchase of Merrill’s non-performing loans, but the talks ...
Merrill Discussed Selling Loans for $200 Million (Update1) Bloomberg
Merrill's bad-debt sale to Korean agency stalls: report MarketWatch
Korea Kamco: In Talks With Merrill To Buy Bad Loan Package CNNMoney.com
This is Money - SmartBriefall 43 news articles

MetLife takes over First Horizon Home Loans
San Jose Mercury News,  USA - Sep 3, 2008
Dan Coyro/Sentinel New York-based insurance giant MetLife has taken over ailing First Horizon Home Loans and its office at 2160 41st Ave. in Capitola. ...
First Horizon Slumps on Outlook TheStreet.com
First Horizon National shares fall on warning MarketWatch
First Horizon exec goes to MetLife Knoxville News Sentinel
Memphis Commercial Appeal - MarketWatchall 54 news articles

EZCORP Acquires Eleven Nevada Pawnshops
MarketWatch - 1 hour ago
EZCORP will acquire approximately $6.6 million of pawn loans, $2.2 million of inventory, $1.2 million of auto title loans and all other operating assets at ...
Ezcorp to buy 11 Nevada pawn shops in $34.5M deal CNNMoney.com
all 9 news articles

Malaysia Star
MCB consumer loans grow as bigger banks shy away
Reuters - 5 hours ago
LONDON, Sept 5 (Reuters) - Tightening consumer credit at mainstream banks is boosting lending volumes for Baltic small loans provider MCB Finance Group Plc ...
BNP creates distressed unit to profit from gloom Reuters
UK urged to clarify funding support for banks Reuters
UPDATE 1-UK's TMN shrugs off weakness in core ad sectors Reuters
Reuters - Reutersall 1,292 news articles

Customers are paid to give up their loans
WTAM.com, OH - 2 hours ago
The company is targeting consumers with lines of credit that exceeds the worth of their home, as a way of getting rid of risky loans. ...

Banks borrow more from Fed; Wall Street takes pass
San Jose Mercury News,  USA - 17 hours ago
3, Wall Street firms didn't take out any loans, the fifth straight period of no action. Their borrowing, however, averaged as high as $38.1 billion a day ...
Credit Crunch: The Sequel U.S. News & World Report
UPDATE 1-US banks' direct borrowing hits record in week Reuters
UPDATE:Comml Bks Set Record For Avg Discount Window Borrowing FXstreet.com The Foreign Exchange Market
Reutersall 77 news articles

Washington Post
Auto news briefs: Wagoner to push loans
Detroit Free Press, United States - Sep 4, 2008
Chairman Rick Wagoner will make the case for up to $50 billion in federal loans to the auto industry at a US Senate energy summit next week. ...
Tough US Auto Market Sees Discounts Losing Their Draw CNNMoney.com
GM, Chrysler Probably Led US Sales Drop in August (Update2) Bloomberg
Auto briefs DetNews.com
Seeking Alpha - AFPall 932 news articles

American Automakers Ask Congress for $50 Billion in Low-Interest ...
Market Wire (press release) - 3 hours ago
... with the help of their powerful lobbyists, persuade the government to give them $50 billion in low-interest loans to help assure a brighter future.

Student loans to get cheaper
Times of India, India - 10 hours ago
BANGALORE: In a bonanza for students, the government will reduce interest burden on education loans. "Students will not have to pay more than 6% interest. ...
Students to get loans at low interest rate Hindu
Govt to help students repay loans Deccan Herald
all 3 news articles

Wind Chimes and more...

Windchimes for great gifts!

Guide to Bridging Loans