Loan Fees
https://www.sec.gov/resources-investors/investor-alerts-bulletins/ia-advance-fee-fraud
This is an analysis of loan origination/due diligence fees, primarily for business loans inn the $1-$100 million range. Some of these are for acquisitions or expansion and involve brokers/agents. Some are lines of credit and some term loans.
I received over $100 million of term sheets from various lenders while I was a CFO. Here is the wording from one as it relates to up-front fees:
A deposit (“Deposit”) equal to $25,000 toward Transaction Expenses shall be due upon acceptance of this Term Sheet.
This is an SEC alert related to fake fee schemes: https://www.sec.gov/resources-investors/investor-alerts-bulletins/ia-advance-fee-fraud
Some lenders have little intention of closing loans, or should be able to figure out quickly (without much expense incurred) that a company isn’t a good credit risk as compared to their underwriter’s requirements. However, they make a lot of money on these fees so they keep charging them. CFO’s and others should be very careful in paying upfront fees. Due diligence on the lender needs to be done to protect a company’s assets.
When a business decides to apply for a loan, they should be aware of the fees and costs associated with the application process and the due diligence required to secure financing. These fees vary depending on the lender and the complexity of the application, but they can add up quickly and significantly impact the cost of the loan. Here are some of the fees businesses might encounter during the loan application and due diligence process:
Application fee: Some lenders charge a fee simply for submitting an application. This is usually a non-refundable fee and may range from a few hundred to a few thousand dollars.
Credit report fee: Lenders often require a credit report to assess a borrower’s creditworthiness and to determine the interest rate for the loan. The cost of a credit report varies but can range from $30 to $100 or more.
Appraisal fee: If the loan requires collateral, such as real estate, the lender may require an appraisal to determine its value. This fee can range from $300 to $500 or more.
Legal fees: The lender may require a borrower to pay for legal fees associated with drafting loan documents, reviewing contracts, or conducting due diligence. These can vary greatly depending on the complexity of the loan and typically range from several hundred to several thousand dollars.
Due diligence fee: Finally, the lender may charge a fee for conducting due diligence to review the borrower’s financial history, business operations, and other factors to assess the risk of the loan. This fee can vary widely depending on the lender, the size of the loan, and the complexity of the review.
It’s important to keep in mind that while these fees can be expensive, the cost of not obtaining financing can be even greater for a business in need of capital. Business owners should carefully weigh the costs and benefits of a loan before applying and investigate multiple lenders to compare fee structures.
In conclusion, when applying for a loan, businesses should be prepared to encounter various fees, including application, credit report, appraisal, legal, and due diligence fees. Therefore, it is important for businesses to research and compare multiple lenders to find the one with the most reasonable fee structure that meets their needs.