Retention fees are “standard business practice” for some (but not all) business loan situations. It is understandable that a commercial borrower would prefer not to pay that fee, so it is important for a commercial borrower to understand when it is most likely necessary. In fact, a business loan advance will not be necessary in many business loan scenarios. This is especially true for business financing, such as business cash advances, which require less time and generate financing in just a few days.
For more time-consuming business loan processes, it is increasingly 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 do business loans as an additional activity to their main business activities) will not charge an advance fee because in many / most cases they are legally prevented from doing so by certain state regulations and federal (in other words, they, too, are likely to charge a retention fee if they are not legally barred from doing so due to prevailing residential loan compliance issues).
So why wouldn’t a business borrower who doesn’t want to pay an advance fee simply work with someone who doesn’t charge an advance fee? Many business loan situations are too difficult for the average residential loan counselor to handle successfully. Like a person looking for a more expensive medical or legal specialist to help them when faced with a serious medical or legal problem, most business borrowers have found that business loan problems are frequently so serious and complex and deserve a business loan specialist. .
In these situations, when a business borrower is working with a business loan specialist, an advance fee should be considered “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 thorough analysis of the trade finance “tradeoffs” is that the lower rate is rarely associated with the best deal for the commercial borrower. A similar observation based on more than 25 years of business loan experience: The lowest rates are also rarely associated with the best deal for the business borrower..
The fees charged by commercial loan specialists (including retention fees where applicable) are almost always higher than those of loan advisers who do not specialize in commercial loans. In the end, most of these borrowers still choose to deal with a highly qualified business loan specialist because they eventually realize that perhaps it is better to use the “best” business loan advisor rather than the “cheapest” business loan advisor.
The most typical range of business loan retention rates is $ 2500 to $ 10,000 (obviously a wide range). There are several reasons for an advance fee and here are three of them: (1) to compensate the advisor for part of the initial loan processing; (2) to serve as a “good faith” deposit to cover general business finance fees; and (3) focus the borrower on working with a business loan counselor. 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 (regarding the same loan). Once an advance fee has been paid, a business borrower is likely to be more comfortable working only with the business loan advisor who received the prepayment 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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