There are three main types of fees and charges that are charged on business lending:
- Ongoing Fee: Charged for the administration of the loan or overdraft facility.
- Upfront Fee: Charged for establishing the loan or overdraft facility. This fee usually depends on the size of the loan.
- Interest Rate: Charged on the balance of the loan or overdraft facility.
As we talked about in a previous article, we can’t give you a dollar-for-dollar comparison of the interest rates charged on business loans, because lenders will often add a risk margin interest charge on top of their advertised interest rate. Margins can also be negative if you pose a lower risk to the lender, so that the risk margin decreases the overall interest rate you pay. But we can certainly take an in-depth look at the fees that lenders will charge you to open and maintain a loan or overdraft with them.
What fees to expect
Fees can make a big difference to the cost of your loan. And as you can see from the tables below, there can be a canyon’s divide between the cheapest and most expensive fees – so it pays to shop around!
For example, for a commercially secured overdraft with a low balance of $50,000, there is a gap of $730 between the least and most expensive ongoing fees in terms of the products that CANSTAR has researched.
| Fees on Low Balance Overdrafts and Term Loans | ||||||
| Ongoing Fee | Upfront Fee | |||||
|---|---|---|---|---|---|---|
| Profile | Minimum | Average | Maximum | Minimum | Average | Maximum |
| Commercially Secured Overdraft | $120 | $431 | $850 | $125 | $579 | $820 |
| Residentially Secured Overdraft | $0 | $397 | $850 | $125 | $579 | $820 |
| Commercially Secured Term Loan | $0 | $277 | $480 | $0 | $1,043 | $2,500 |
| Residentially Secured Term Loan | $0 | $205 | $480 | $0 | $1,023 | $2,500 |
| Source: www.canstar.com.au
Based on loan amount of $50,000 for overdrafts and $250,000 for term loans. |
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The gap between the least and most expensive fees is even more pronounced when you’re dealing with a higher balance overdraft or term loan. For example, a commercially secured overdraft with a high balance of $125,000 could see a $1,380 in the ongoing fees on offer.
| Fees on High Balance Overdrafts and Term Loans | ||||||
|---|---|---|---|---|---|---|
| Ongoing Fee | Upfront Fee | |||||
| Profile | Minimum | Average | Maximum | Minimum | Average | Maximum |
| Commercially Secured Overdraft | $120 | $737 | $1,500 | $313 | $725 | $1,250 |
| Residentially Secured Overdraft | $0 | $672 | $1,500 | $313 | $709 | $1,250 |
| Commercially Secured Term Loan | $0 | $227 | $480 | $0 | $1,855 | $5,000 |
| Residentially Secured Term Loan | $0 | $205 | $480 | $0 | $1,778 | $5,000 |
| Source: www.canstar.com.au
Based on loan amount of $125,000 for overdrafts and $500,000 for term loans. |
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Of course, it’s worth mentioning that fees are just a small part of the loan. The biggest thing a consumer should be concerned with is trying to get a competitive interest rate.\
Canstar’s Hot Tip: Look for a flat fee
Some institution’s fees can be astonishingly more expensive, because they are charged as a percentage of the loan amount you borrow rather than being a flat fee. With a flat fee, your ongoing fee is not going to get more expensive if your overdraft grows.
For finance that grows along with your business – without the fees out-growing your budget – compare business loans and business overdrafts with Canstar.
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