8 Questions Your Small Business Clients Should Ask When Seeking Capital: Question 2: What fees are involved?

 

This is part two of an 8-part small business financing blog series in partnership with The Business Backer. This blog series will clear the financial fog, providing you with the tools necessary to make the best financing decision for your diverse or woman-owned small business.

Last month we introduced you to the state of small business lending and the first question your clients should ask when seeking financing: What kind of lender are you?

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Let’s dive into the next question:

Question 2: What fees are involved?

Hidden fees are commonplace in the consumer world, tacked on to a wide variety of purchases including airline tickets, cell phone plans, and medical treatments. Another frequent example is cable and internet service; we’ve all heard something about the Comcast debacle. It’s no surprise these fees are also common in the unregulated small business lending space. The truth is that some fees are necessary, such as those that intend to cover risk or services needed to process the loan. Other fees are completely frivolous and do not supplement anything except the broker’s or lender’s pockets.

HOW BAD IS IT?

With new lenders and brokers opening their doors every day and more capital available in the market for small businesses than ever before, the fight for the lowest rate is a cut-throat battle. The desperation to gain market share while continuing to make a profit has led some lenders and brokers to add unnecessary “fees,” which allows them to post a lower rate than the competition to earn business despite charging more. Fees may be disclosed and defined or they could be included within a blended, lump sum cost in the agreement, which is extremely confusing to the client.

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