Business Loan Retention Fees

Advance fees are “standard business practice” for some (but not all) business loan situations. It is understandable that a business borrower would prefer not to pay such a fee, so it is important for a business borrower to understand when it is most likely to be needed. In fact, a business loan advance will not be necessary in many business loan scenarios. This is especially true of business financing, such as business cash advances, which take less time and generate funding within a few days.

For more time-consuming business loan processes, it is becoming more common for an advance fee to be paid during the preliminary stages. This is especially true when working with business loan consultants who specialize in business loans. Most advisers who work with residential mortgage loans (and make business loans as a sideline to their main business activities) will not charge an advance fee because in many/most cases certain state and federal regulations prevent them from doing so legally (In other words, they are also likely to charge an advance fee if they are not legally prohibited from doing so due to prevailing residential loan compliance issues.)

So why wouldn’t a commercial borrower who doesn’t want to pay an advance fee simply work with someone who doesn’t charge an advance fee? Many commercial loan situations are too difficult for the average residential loan officer to handle successfully. Like a person looking for a more expensive medical or legal specialist to help when faced with a serious medical or legal issue, most business borrowers have come to realize that business loan problems are often just as serious. and complex and in need of a business loan specialist. .

It is in these situations, when a business borrower is working with a business loan specialist, that a retainer fee should be viewed as “standard business practice” for more difficult and time-consuming business loans. I have said elsewhere that one of the most important lessons to be learned from a comprehensive analysis of trade finance “offsets” is that the lowest rate is rarely associated with the best offer for the commercial borrower. A similar observation based on over 25 years of business lending experience: the lowest rates are also rarely associated with the best deal for the commercial borrower.

Fees charged by business loan specialists (including retainer fees where applicable) are almost always higher than those charged by loan officers who do not specialize in business loans. In the end, most of these borrowers still choose to deal with a highly qualified business loan specialist because they finally realize that maybe it is better to use the “best” business loan advisor instead of the “cheapest” business loan advisor.

The most typical range for business loan retention fees is $2,500 to $10,000 (obviously a wide range). There are various reasons for a retainer fee and here are three of them: (1) to compensate the adviser for part of the initial processing of the loan; (2) to serve as a “good faith” deposit for general trade finance fees; and (3) focus the borrower on working with a business loan advisor. The third reason could be the most important of all. With difficult business loans, it is extremely counterproductive for a business borrower to work with multiple business loan advisors (on the same loan). Once an advance fee has been paid, a business borrower is likely to feel more comfortable working solely with the business loan advisor who received the advance fee, and with difficult business loans, this unified approach is likely to have more success. It is this success that ultimately justifies the retention fee.

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