Five Little Known Financing Fees That Potentially Cost Entrepreneurs A Fortune!
So it’s really no secret by now, (I guess), that extremely savvy entrepreneurs,(such as yourself), have an awful lot on -both- their minds and plate, correct?
For sure. Because after all, if things don’t work out.
Nobody, but especially, enthusiastic investors, (no matter) how much, or how little they actually invested in your dream!
They’re not going to hold your hourly, and or salaried employees responsible for your entrepreneurial failures, are they? No way!
And while no single person, no matter how brilliant they are, can possibly be on top of every single issue and or potential concern, which will surely rear it’s head, at some point, during your entrepreneurial journey! Correct?
One area, where even the savviest of entrepreneurs, often take a beating, is when it comes to money changing hands, during the borrowing, financing phase process!
Let’s have a look, at five little known ways, small business owners and or entrepreneurs, (but especially) start up entrepreneurs, tend to get smacked around!
(Financially speaking of course!
) And what you definitely need to know, in order to avoid it!
So What Are These Five Little Known Financing Charges Which Can Potentially Cost Savvy Entrepreneurs A Fortune?
First of, (ladies & gentlemen) let’s eliminate, some of the potentially, fancy sounding play on words lenders sometime use.
So you’re not bamboozled, by the words, and miss their potential, initial or ongoing costs to you!
Perhaps the loan applications/forms state, absolutely no upfront closing costs! (Which is true BTW!) Well, let’s just say, those lenders, and the excellent services they provide, are not free!
Somebody, (typically the borrower) has to pay for them. So more times than not, they simply roll all of those (additional financing) costs into the entire loan, and deduct them from the gross amount, (known as principal), the borrower receives.
And because the lender charges the borrower, for the entire amount of principal they initially borrowed, not the actual amount they borrowed.
This subtle maneuver yields an overall higher net interest rate for the lender.Without actually raising the borrowers interest rate, in order to do so!
You Have To Understand How Lenders Calculate Finance Charges!
For ex: let’s say you or a small business owner, start up entrepreneur, and or service provider etc; borrows an additional $100,000 dollars (or X.)
And when they tally up all the fees, surcharges, commitments, or whatever names/labels, sophisticated lenders like to use these days.
And once you deduct them from the original $100,000 dollars worth of principal borrowed, the lender still charges the borrower, as if they borrowed the entire $100,000 dollars, not the actual $97,500 they actually borrowed.
This in affect, raises the lenders overall (effective) interest rate, without actually raising the real interest rate the borrower is being charged.
How Hidden Cost Affect And Or Limit Your Small Business Opportunities!
So here’s a look, at these five hidden, and or little known financing fees which often cost (many) an unsuspecting small business owner/service provider, and or start up entrepreneur, far more than just money!
BTW, typically the term “point” or points, represent, one percent of the loan amount. For example. When you borrow $100,000 dollars, and the lender charges two points.
This simply means, they will charge you $2,000 dollars in upfront fees,(costs if you will) to initiate the loan.
But they still charge you for borrowing the entire $100,000 dollars, even (though technically speaking), you actually borrowed $98,000 dollars (or X!)
Don’t Ever Forget Lenders Are In The Business Of Loaning Money To Qualified Candidates!
1.) Potential hidden financing fee # one: This first, rather subtle money maker for many a lenders, is often referred to as a “commitment” fee!
You or I decide you/we need some additional funding, and they need (and get!) a commitment fee, to make it happen!
Typically, it may cost you or I, as much as a quarter (.25%) to 1.5% of the original loan amount.
2.) Potential hidden financing fee # two: Need to start over? Well, in that case, a “restructuring” loan fee, may be just what (both) you and the lender need, to make it happen!
3.) Potential hidden financing fee # three: You can’t close these rather sophisticated loans on your own, now can you? Why no!
You’ll definitely need to pay some attorneys “closing costs”, fee (of X%), whether they charge them up front or not!
Savvy Entrepreneurs Can’t Afford To Be Semi Financially Illiterate!
4.) Potential hidden financing fee # four: We all know totally unexpected things just seem to happen, from time to time!Correct? No problem!Because certain lenders have got it covered!
That’s why you may need to pay for, (believe it or not), something called an “Unanticipated Audit Expense” fee!It’s true!
Some lenders (reserve the legal right), often buried deep in their fine print, to do their own independent audit of certain financial records.
And charge you and I a quarter to a full percentage point, for the privilege of doing so!
Some Lenders Fees Are Really Designed To Increase Their Gross Front End Profits!
5.) Potential hidden financing fee # five: And finally, isn’t it nice, when you can “lock in”, some guaranteed savings, and or (rate lock) benefit etc!
Well, guess what? Your lender, may in fact raise your interest rate, even after you and I have signed papers, and paid various fees,(points), if you and I didn’t or could get, (and pay for!) some type of “rate lock” in” fee!
Typically, the lender raising your stated interest rate, would only apply this rather questionable tactic, if the short and long term interest rates, were constantly fluctuating quite a bit, over a short period of time!
Here’s the other, often overlooked, potential lost savvy entrepreneurs, tend to suffer, from these capital drains!
Money Wasted On Avoidable Fees Or Unnecessary Costs Is Money You Can’t Invest In Your Business And Or Service!
The money lost to various fees, and or costs associated with not only, (initially) borrowing, but paying back. Or paying fees to refinance various forms of short and long term debt etc!
This money, can’t be invested in software, which may help improve overall efficiency!Nor can it be invested in, improving your current or future marketing strategies!
Which again, may lead to increased long term gross profits, plus help you cut or eliminate altogether, strategies which no longer work etc!
That’s why, it’s really no secret, how and why, these five little known financing fees, often cost savvy entrepreneurs, even more than just money!Don’t you agree? Now as is customary during this part of our show.
The More You Know The More Ways You Can Protect Yourself!
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