How to identify hidden charges when you apply for business loans?
Every business needs a lot of funds and investment to grow and expand. It is not important that every entrepreneur has enough money to invest in his/her startup, but this doesn't stop them to achieve and start what they want. There are several options which they can arrange the funds from, and one of them is a business loan
. People prefer taking business loans from banks as they are more reliable, trustworthy, and affordable than private finance companies.
However, when one proceeds with a business loan from any bank, he/she first calculates the repayment capacity, that is including the interest that is to be paid to the bank and also the applicable taxes. But sometimes, the entire budget gets disturbed when the bank adds a lot of hidden charges to the amount and the installment becomes much more than what we expect. To avoid such cases in business loans, one needs to have adequate knowledge of the hidden charges that a bank may apply when you take a loan. To identify all the hidden charges in a loan, you can simply ask the relationship manager or agent, to provide you with a list of extra charges that will be applied, be it hidden or upfront. Moreover, just to boost your knowledge on general hidden charges in a bank loan, we have mentioned below all possible hidden charges. Keep the same in mind to avoid any inconvenience.
1. The loan processing fee is a mandatory charge in almost all banks. The banks only talk about this charge at the time of loan disbursement, which is the last stage. Till then, the applicant has no idea that this is a one-time charge that would be deducted from the total loan amount. If you haven't considered this while planning repayment, it would be a great shock for you at the end moment. Hence, if you are taking a loan for the first time, always include this charge in your planning.
2. Documentation charge: Again, this charge is quite different from the processing fee. This is also one of the charges that are revealed right before the disbursal of the loan. This is a fee charged by the bank to run a vetting through your documents and prove them credible. Different banks have different Norms as far as the documentation charge is concerned.
3. Inspection charges: It is a standard process of every bank to inspect all your places, properties, documents, and other possible things associated with you before approval of the loan to ensure that you are credible enough to pay back the loan. However, to conduct this process, the bank employees have to travel and spend a lot. Now, these expenses are covered by the bank from you only, as they add the inspection charges to your bill, and finally deduct them right before the amount disbursal. Again, this a surely a one-time payment, but definitely disturbs your repayment plan if not kept in mind while planning.
4. Foreclosure charges: Most of us prefer bank loans as we can pay in installments and that is quite easy for us. However, in the case of business, we often get good profits and have sufficient funds to close the existing loan in one go rather than dragging it. If you are also planning to do the same, let me tell you, they are going to charge you a good amount of penalty which they call forclosure charges as forclosing the loan is definitely not in the interest of the bank. So, make your decisions wisely here.
5. Penal interest: Once you get the loan from any bank, it becomes your responsibility to ensure that you are paying it back on time. If you fail to pay the installments on the due date, the bank starts putting the penal interest on your account which is really difficult to manage and could prove to be a significant loss for you. Hence, one must avoid any penal charges and pay the installment on time, not just to stay stress-free but also to save money and also build a good credit profile for the future.
All the above charges are hidden charges that are applicable in most banks. One must be aware and keep this in mind to avoid shock due to any hidden charge showing up without notice. Applying for business loans could be your first resort when you are hunting for a reliable way to deal with your expenses. However, applying for business loans with no hidden charges could be troublesome when you are not aware of it.
Well, this guide will surely help to avoid hidden fees when applying for business loans. Now, consider all the facts mentioned above and try avoiding hidden charges. Certainly, you will be able to save bucks on repayments and make borrowing affordable.