Obtaining a business loan can be a big step in reaching your company’s objectives. However, many borrowers are ignorant of unstated costs that may raise the loan’s total expense. Comprehending these costs and their ramifications is necessary to prevent unpleasant surprises and make an informed choice.
Discover some typical hidden costs linked to a business loan in Singapore and learn advice on how to avoid them.
10 Hidden Fees to Watch Out for When Taking a Business Loan
1. Processing Fees
Most loan companies charge a processing fee, also known as an administrative fee. This fee is typically a percentage of the loan amount and is deducted before the loan is disbursed. Although the percentage may seem small, it can significantly affect your cash flow, especially if you’re taking a large loan.
How to avoid surprises: Before signing the loan agreement, ask the loan company for a clear breakdown of the processing fee. Compare rates across multiple providers to ensure you’re getting a fair deal.
2. Early Repayment Penalties
Many loan companies impose penalties if you decide to repay your business loan earlier than the agreed term. Although early repayment may seem like a good financial decision to reduce interest costs, these penalties can offset the benefits.
How to avoid surprises: Review the loan terms carefully to understand the conditions for early repayment. If you anticipate repaying your loan early, choose a provider that offers flexible repayment options without hefty penalties.
3. Late Payment Fees
Failure to meet repayment deadlines often results in late payment fees. These fees can escalate quickly, affecting your repayment plan and financial health.
How to avoid surprises: Set reminders for repayment due dates or set up automatic payments. Confirm the late payment fee structure with the loan company before signing the agreement.
4. Commitment Fees
A Singapore loan company will typically charge a commitment fee, which is a fee for reserving funds for you even if you don’t end up using the entire approved loan amount. This fee can be a fixed amount or a percentage of the unused funds.
How to avoid surprises: Clarify whether the loan company charges a commitment fee and under what circumstances it applies. If this fee exists, consider whether you truly need the entire loan amount or if a smaller loan might suffice.
5. Legal and Documentation Fees
Legal fees and documentation charges are often overlooked by borrowers. These fees are incurred when preparing legal documents and agreements required for loan disbursement. The cost varies depending on the complexity of the loan.
How to avoid surprises: Request a detailed explanation of all legal and documentation fees. Some loan companies include these fees in the processing charge, so understanding the breakdown is essential.
6. Guarantee Fees for Secured Loans
You might encounter guarantee fees if you’re applying for a secured business loan. These fees are charged for third-party guarantees required to secure the loan, often imposed by the guarantor or loan provider.
How to avoid surprises: Determine whether the loan requires a guarantee and the associated costs. Include this expense in your cost analysis if a guarantee fee is necessary.
7. Loan Cancellation Fees
Some loan companies may charge a cancellation fee if you decide to cancel your loan after approval but before disbursement. This fee compensates the company for administrative work already completed.
How to avoid surprises: Understand the cancellation terms outlined in the loan agreement. Avoid committing to a loan unless you’re confident in proceeding with it.
8. Annual Fees
A loan company in Singapore also imposes annual fees for maintaining the loan account. These fees are usually charged on top of the interest and other recurring costs.
How to avoid surprises: Ask whether the loan includes annual fees and factor them into your total cost calculations.
9. Currency Conversion Fees (For Foreign Currency Loans)
You may face currency conversion fees if your business loan involves foreign currencies. These fees are charged when converting the loan amount or repayments into Singapore dollars or another currency.
How to avoid surprises: Verify whether currency conversion fees apply and compare them across different providers. Working with a loan company offering favourable rates can reduce costs for businesses dealing with international transactions.
10. Hidden Costs in Promotional Offers
Some loan companies advertise promotional offers with low interest rates but fail to highlight additional costs such as mandatory insurance or service charges. These hidden costs can significantly raise the overall expense.
How to avoid surprises: Scrutinise promotional offers and request a full breakdown of all associated costs. Be wary of deals that seem too good to be true.
Conclusion
Knowing where to get a startup business loan isn’t the be-all-end-all of having finances; knowing the loan’s interest rate and hidden fees is also necessary. After all, your ability to repay debt and your financial planning may be greatly impacted by hidden costs. You may select the finest loan provider for your needs and prevent needless costs by knowing the entire loan cost and comparing terms offered by other lenders. Carefully read the loan agreement and always request a comprehensive breakdown of fees before signing. Your business loan will continue to be a valuable asset rather than a financial burden with this vigilance.
Contact HHL Credit and get started on securing the funding you need for your business growth.
