Business Loans: Read the Fine Print

Business loans are a necessary part of a successful business at one juncture of its life to another. This is why getting approved for a business loan can be extremely exciting. Unfortunately, many people get caught up in the excitement of actually getting approved that they forget to read the fine print. The fine print, if not carefully considered, can end up costing you a lot more than you bargained for.

It’s All in the Fine Print: What You Need to Look For

Before you decide to settle on a lender, seek information about them. Understand their business practices and check with the Better Business Bureau (BBB). Look to see if there are any complaints on the company about hidden costs, unfair practices, and things along that line. You will also find that friends, colleagues and other small business owners are also a great resource for research information.

Understand What You Are Getting

One of the most important aspects of getting a business loan is understanding what kind of packaging you are getting for your loan. You should be crystal clear on what your annual percentage rate is, how long you will be repaying the loan, what your monthly loan payment obligation is and what makes up that monthly payment. Ask as many questions as it takes for you to understand.

Read Before You Sign Anything

Read every part of any paper that is handed your way for a signature. Understand that the paper you are signing is a binding contract. If your lender tells you otherwise or pushes for a signature without you reading the details, consider not going through with the deal or take the documents to someone who is a professional in loan documents.

Your loan agreement is outlined through loan terms. Many of these terms are visible while some of the terms are in fine print. Fine print terms often include annual percentage rates and pre-payment penalties. These are both loan terms that can inflate the cost in the long term of the loan.

Never sign a blank document. Make sure you are signing a document with information that is clear. You will also receive copies of the loan documents to ensure no document has been altered.

Processing Fees and Loan Document Charges

The fees lenders charge are based on each individual company’s terms. Processing fees will generally be the same amount, plus or minus up to 15%. If you have high processing fees, you need to shop around for another lender or inquire why their fees are higher. The same goes for loan document charges. These are often two aspects that can be tacked on to the fine print, over and above what you have already committed yourself to in charges.

Late Fees and Other Miscellaneous Items

Read the policy on late fees. Some lenders charge a very high late fee when a payment is past the due date and after the grace period. Check other items such as variable or fixed interest rate. In a business loan, you will want a fixed interest rate, even if the promises at the beginning look good. Be aware that a year down the road, a variable interest rate could be very costly.

Also pay special attention to what happens if you default and find yourself in financial trouble with your business. Some lenders take a sharper action than others. Even a few rocky months could hurt your business with a lender that is quick to collect.

These are just some items that you will want to make sure you review in your fine print before committing your company to a business loan.