Business loan agreements often hide costs in plain sight—tucked into term sheets, wrapped in jargon, or buried in the fine print. Many borrowers don't discover these fees until they've signed and funding has hit their account. Understanding what to watch for before you commit can save thousands of dollars and protect your cash flow.
Origination Fees: The Entry Price
Origination fees are charged by the lender for processing, underwriting, and closing your loan. These typically run 1% to 3% of the total loan amount, though SBA loans often cap out around 2.75% for 7(a) loans. A $100,000 loan with a 2% origination fee costs you $2,000 upfront.
The catch: some lenders advertise a low origination fee but add "processing fees," "application fees," or "documentation fees" separately. Always ask for the total cost as a percentage of the loan amount—don't compare individual line items. Request a Loan Estimate that breaks down all fees in one place.
Prepayment Penalties: The Lock-In Cost
Some business lenders penalize you for paying off the loan early. These penalties can run 2% to 6% of the remaining balance, effectively making it expensive to refinance or accelerate repayment when business improves.
SBA loans typically have no prepayment penalties, which is one reason they're popular. But conventional bank loans and alternative lenders sometimes impose them. Before signing, ask directly: "Is there a prepayment penalty, and if so, what is the amount and timeframe?" If the lender hedges the answer, that's a red flag.
Annual Percentage Rate (APR) vs. Interest Rate
The interest rate is not the full cost of borrowing—the APR includes interest plus fees spread over the loan term. A lender might quote you a 6% interest rate, but the APR could be 7.5% once origination and other fees are factored in.
Compare APRs across lenders, not raw interest rates. The difference between a 6.5% APR and a 7.8% APR on a $150,000 five-year loan amounts to roughly $2,000 in extra interest and fees combined.
Late Payment and NSF Fees
Late fees typically range from $25 to $50 per occurrence or a percentage of the monthly payment (often 5%). Some lenders also charge non-sufficient funds (NSF) fees of $15 to $35 if a payment bounces.
These seem minor until cash flow tightens. If your business hits a rough month, a single late payment on a $50,000 loan could trigger $50 in fees plus interest accrual. Request the exact late fee structure and ask about grace periods—many lenders offer a 10-15 day grace period before penalties kick in.
UCC Filing and Administrative Fees
When you borrow money secured by business assets (equipment, inventory, accounts receivable), the lender files a UCC (Uniform Commercial Code) filing to claim a lien. The filing itself costs $15 to $100 depending on your state, but lenders often charge $100 to $300 to handle the filing and charge you for it.
Also watch for:
- UCC search fees ($50–$150) — the lender's cost to verify no other liens exist
- Annual compliance or maintenance fees ($100–$250) — some lenders charge yearly for servicing
- Subordination agreement fees ($200–$500) — if you later need a second lender
Always ask: "What fees are included in the origination fee versus charged separately?"
SBA Loan-Specific Costs
SBA loans have a 0.55% "guarantee fee" (capped at $6,500 for 7(a) loans) paid to the SBA, which lenders often pass to you. You'll also encounter:
- Servicing fees ($25–$50 per month) — charged by the lender for loan administration
- Annual SBA compliance fees ($100–$200) — for maintaining the loan
These are standard and unavoidable with SBA loans, but knowing them upfront prevents surprise bank statements.
How to Compare Properly
Request a Loan Estimate from every lender showing all costs. Line them up side-by-side and calculate the total cost of borrowing (interest + all fees) over the full loan term. Don't cherry-pick—compare full APR, prepayment terms, and all ancillary fees together.
Using a service like Mercoly, you can compare and review multiple Business Loans & SBA Lending providers in one place, making it easier to spot outliers and find the best overall deal.
Frequently Asked Questions
Q: Do SBA loans have prepayment penalties? No—SBA 7(a) loans have no prepayment penalties, allowing you to refinance or pay off early without extra costs.
Q: What's a typical origination fee range for a business loan? Origination fees usually range from 1% to 3% of the loan amount; SBA loans cap out around 2.75%.
Q: Can late fees and NSF charges vary significantly between lenders? Yes—late fees range from $25 to $50 per occurrence, and some lenders charge 5% of the monthly payment instead, so clarifying the exact structure is critical.
Start by requesting full Loan Estimates from at least three lenders, then compare total costs, not individual fees.