Is There A Processing Fee For Business Loans?

Almost every business, big or small, needs to borrow money either to meet short-term working capital requirements or for long-term capital expenditure. In such a situation, when a business is short on cash, its owners can avail a business loan to tide over a sticky situation and keep the enterprise running without a hitch.

An entrepreneur or a micro, small and medium-sized enterprise can use the business loan for any number of purposes, from setting up an office or a factory to buying inventory and equipment and even for making payments to employees and vendors.

A business loan is an easy and a hassle-free option to secure capital, and a large number of banks and non-banking finance companies offer this credit facility. The amount of loan, tenor, interest rates and repayment terms vary from business to business and from lender to lender, as does the loan application and approval process.

Cost Of Business Loans

There are essentially two types of costs involved while taking a loan—interest payments and processing fees.

Interest is the extra money paid to a lender by the borrower for borrowing the money. In addition, the borrower also has to cough up some more money as processing fees, which goes to the lender, at the time of applying for the loan.

However, while interest payments are usually made monthly until the loan is fully repaid, the processing fee is a one-time expense.

Loan Processing Fee

A loan processing fee is essentially the amount of money that a borrower pays to a lender for processing their application. These charges go towards the procedures that involve verification of documentation, assessment of the value of collateral, if any, and the disbursement of money and its repayment.

Apart from helping the borrower out with the entire process of availing the loan and repayment, many well-established lenders also offer various value-added services to their customers.

Further, a good lender can also tailor a repayment schedule to suit the cash flow in the business for which money is being borrowed, so that the borrower pays back the principal amount and the interest without any stress.

How Much Do Lenders Charge As Processing Fees?

Typically, banks and other non-banking financial institutions charge anywhere between 2.5% and 3% of the loan amount as a one-time fixed cost that the borrower needs to incur.

The processing fee is deducted from the total loan amount at the time of disbursement and the borrower needs to repay the loan and the interest in monthly installments.

Additional Fees

In addition to the interest and processing fee, banks and NBFCs also levy certain additional fees for specific purposes. For instance, lenders typically impose a penalty if the borrowers delay monthly repayments.

Most lenders also require the borrowers to pay a small fee to partially repay the loan ahead of schedule. Similarly, a foreclosure charge is applied when the borrower wants to close the loan before the agreed tenor is over.

Conclusion

A business loan is easy to avail of, and comes with several advantages, including flexible repayment options.

While the benefits of a business loan come with some minor associated costs like a processing fee, borrowers should make sure they approach a good, well-known and established lender like IIFL Finance.

By going to a well-known lender, not only will the borrower be able to get the best possible interest rate and the most flexible repayment plan, but also excellent customer care support and assistance with the entire process.

Moreover, once the borrower builds a relationship with the lender, the latter can also bring down the processing charges, to make the experience even more fruitful for someone availing a business loan.