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Guide

What fees come with business funding besides the rate?

An origination fee, commonly a few percent of the amount and deducted before the money lands; sometimes an underwriting or processing fee, an ACH fee per debit, a late or returned-payment fee, and on some products a prepayment or early-termination charge. A broker's fee may be inside the origination fee or separate. On a $10,000 advance, $300 of fees is three percent of the cost before any factor applies, which is why fees matter more on small, short funding than the rate does.

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The fees, one by one

Origination: the largest and most common, a percentage of the amount, taken off the top. You are approved for $50,000, the fee is 3 percent, $48,500 arrives, and you repay the factor on $50,000. Ask whether the factor applies to the gross or the net; it is nearly always the gross.

Underwriting or processing: a flat amount on some products, a few hundred dollars, sometimes waived on request.

ACH or payment fees: a small charge per debit on some advances, which over a hundred daily payments is not small.

Returned-payment and late fees: charged when a debit bounces, and a common trigger for a default notice.

Prepayment or early-termination: on interest-bearing products, sometimes a charge for repaying early; on factor products, the total is fixed anyway.

Broker fee: paid by the funder out of its margin on most deals, occasionally charged to you separately. Ask which. A fee charged to you before funding, to secure the funding, is the sign of a scam rather than a fee.

Why fees matter more on small amounts

$300 on $10,000 is 3 percent. $300 on $100,000 is nothing. The factor scales with the amount; most fees do not. For a small, short advance, the fees can be a third of the total cost, and an offer with a lower factor and higher fees can cost more than one with the reverse. Compare on total dollars repaid minus dollars received, with every fee inside the number.

Cost of $50,000, by product

BANK TERM LOAN60 months · hardest to qualify for$13,700SBA 7(A)120 months · lowest monthly, slowest$34,200ONLINE TERM LOAN18 months · days, not months$11,500LINE OF CREDIT12 months · pay only on what you draw$7,400MERCHANT CASH ADVANCE9 months · fastest, no score floor$15,000$0$36,000
Total cost of capital on a $50,000 facility, with the term stated on every bar — a comparison that hides the term is not a comparison. An advance is the most expensive money here and the only one that reaches a business the bank has already declined. Illustrative figures at mid-range pricing, not an offer.

Getting them in writing

Ask for the amount received, the total repayment, the term and every fee on one page before you sign. In a dozen states the funder must provide a standard disclosure that includes exactly that. Anywhere else, a funder that will not put the fees on paper is telling you what the fees are like.

More on what it costs

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Sources

Related questions.

Is an origination fee negotiable?
Sometimes, especially on a larger amount or a repeat customer. It is worth asking, and worth asking whether the factor can move instead — one of the two usually can.
Are fees the same as points?
Points are an origination fee expressed as a percentage; three points is a 3 percent fee. Same thing, older word.
Do I get the fee back if I don't take the funding?
You should never have paid one. Fees come out of the funded amount at closing. Any fee requested before funding, to process or secure the funding, is the advance-fee scam the FTC warns about.

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