Mesaside Advances, a small-business funding broker in Cheyenne, Wyoming, explains the fees that can come with business funding: origination, closing and documentation, UCC filing, draw and annual fees on credit lines, prepayment charges, late and returned-payment fees, merchant cash advance fees and broker fees. It shows how to compare offers by net proceeds and total cost. Partners set all fees.
| Most important number | Net proceeds: what reaches your account after fees |
|---|---|
| Compare offers by | Total paid back or delivered, minus net proceeds |
| Fee amounts | Set by each partner; none published here |
| Broker fees | Disclosure pending counsel review |
| Who decides | The lending partner sets every fee and term |
Two numbers that capture every fee
- Net proceeds = the funding amount − any fees deducted at closing
- Total cost = everything you pay back or deliver, including fees charged later − net proceeds
Work these out for every offer. Two offers with the same rate can have very different net proceeds, and the one that looks cheaper on the rate can cost more once fees are counted.
What is an origination fee on a loan?
An origination fee is a charge for setting up and processing the funding. It is usually a percentage of the amount or a flat charge, and it is either deducted from what you receive or added to what you owe. Either way, you pay it. It is common on many business loans and equipment financings, though not on every product.
Is an origination fee normal?
Common, yes; universal, no. The useful questions are how it is calculated, whether it is deducted up front, and whether it is refundable if you pay early. A fee can sometimes be negotiated, especially when you have competing offers.
Who pays the loan origination fee?
The borrowing business, in almost every case. On a commercial loan the fee is part of the agreement you sign, so check where it appears in the closing statement.
Closing, documentation and UCC filing fees
Some partners charge separately for preparing documents, closing the transaction or filing a UCC financing statement that records their security interest. These are often small relative to the amount, but they still reduce net proceeds or add to the total. Ask for a closing statement that itemizes each one.
Fees on lines of credit
- Draw fees, charged each time you borrow from the line
- Annual or maintenance fees, charged whether or not you draw
- Unused-line fees, on the part of the limit you do not use
- Renewal fees, when the line is reviewed and extended
A line that is rarely used can cost more in fees than in interest. See how business lines of credit work.
Prepayment charges
Paying a loan off early can trigger a prepayment charge, or a clause that keeps some of the interest the partner expected. On a term loan this belongs on the comparison list from the start, because refinancing or selling the business later may depend on it.
Late, returned-payment and default fees
Late fees, returned-payment fees and default charges do not appear in your planned cost, but they are in the contract. Read them as a measure of how expensive a bad month would be, especially on agreements that debit your account daily or weekly.
Fees on merchant cash advances
A merchant cash advance is not a loan, and its main cost is built into the factor, but some funders also deduct administrative or origination-style fees from the advance. That means you receive less than the stated advance while the purchased amount stays the same. Use the net amount you actually receive when you work out the cost; APR vs. factor rate shows why.
Fees on equipment leases and financing
Equipment deals carry their own set of charges: documentation fees at signing, an advance payment or security deposit, required insurance naming the partner, and, on a lease, charges at the end of the term for returning, buying or extending. A lease with a low monthly payment can still be the costlier route once a large end-of-term purchase price is counted. Read the end-of-term section before comparing a lease with a loan; equipment financing explains the three structures.
Broker fees
Whatever any broker charges, the fee should be disclosed in writing before you commit, and you should never pay anyone a fee simply to have a request considered. Our disclosures page describes the relationship.
Ask for the closing statement
Before you sign, ask for a closing statement or settlement sheet that lists the amount, every fee, what is deducted and the net figure that will be deposited. Compare it with the offer you were given. If a fee appears that nobody mentioned, ask what it is for before you sign, not after the funds arrive.
A fee checklist for any offer
- List every fee, with its amount and when it is charged
- Note which fees are deducted from the funding and which are added later
- Work out net proceeds
- Add up everything you will pay back or deliver
- Subtract net proceeds to get the total cost in dollars
- Compare that figure, and the time it covers, across offers
The total cost of funding calculator does the interest arithmetic; this checklist covers the fees it leaves out. How a request moves shows where the offer comes in, and more guides are in the resources section.
By Mesaside Advances · Updated