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Cyber Monday was massive. It broke all records with online shoppers spending more than $3 billion, according to the Adobe Digital Index. That’s a 16 percent jump from last year. My email inbox was filled with retail offers for discounts, bonus purchases, never to be repeated once-off savings and sometimes unbelievable retail offers – all aimed to encourage us to buy online before 11.59:59 PM on Monday.

An ingredient in the success of Cyber Monday is that online shoppers know they don’t have to hunt around different websites for a discount on that Monday. All retail sites offer some Cyber Monday promotion. It’s competitive too. Prices are very transparent, free shipping and returns, buy now – pay later offers as well as interest free periods!

When it comes to online lending for small business loans, the seemingly open marketplace touted by online funding platforms can be very murky. In particular, once off loan origination fees which are levied without the discerning small business persona applying for the loan being aware of it.

Further research into the range of fees charged by online funding platforms in the small business funding industry reveal various charges.

Firstly, let me be clear. United Capital Source does not charge closing costs or upfront fees for small business loans. Where a lender requires a fee due to increased processing fees (often related to application processes), United Capital Source will factor these fees into the life of the business loan.

Before looking at online lending platforms, it is very important to know which lenders are charging upfront origination of loan fees. In an article at FitSmallBusiness.com, the following comment was published where a business merchant states he is charged a $881 one time fee by PayPal for a working capital loan.

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Although this article states that “PayPal is the cheapest provider of money for your business in terms of Annual Percentage Rate (APR)” it is very important to know that APR is the cost of a loan over one year, including fees.

When applying for a small business loan, be sure to ask about the upfront origination fees and if they are going to be amortized over the life of the business loan. Be aware that online funding platforms are focused on automating instant approval. Given that business loan applicants are busy entering business information (revenue sales turnover, cost of goods sold, profit margins, cash at bank balances, expenses, credit card statements, etc), there is a tendency not to think about the origination fees.

According to NerdWallet, OnDeck’s loans require a one-time origination fee of 2.5% of your total loan amount ($2,500 for a $100,000 loan). However, this figure drops to 1.25% on your second loan and 0-1.25% on your third and all future loans. The company states that customers in good standing also typically get a reduced interest rate on their loans after several years with OnDeck.

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Is this a good deal? In our opinion, not at all. Why should one-time origination fee’s be charged at all? If you think about Amazon, they do not charge the buyer an upfront fee for the purchase. I hear you, business loans are different to books or movies. eBay does not charge the buyer for high priced items that costs tens of thousands of dollars (think luxury watches, cars, boats, etc).

At United Capital Source, we avoid upfront origination fees on business funding and believe that by offering lower one-time origination fees for repeat customers is not in the best interests of our customers. We believe origination fees for returning customers should be eliminated, as they have paid back their loan with interest. A lower risk business applying for small business funding is an ideal customer. Why penalize them with a loan origination fee when most of the business documentation is on file and requires minimal updating of financials to assess future business loan requirements.

In 2011, United Capital Source provided business funding for a medical clinic physician, who with our funding has grown his practice count from 27 to 41 medical clinics. If we were to charge this client a loan origination fee each time he applied for a new business loan, it would be punitive. Unlike other lenders who charge one time origination fees for returning customers, United Capital Source stands firm on our promise not to levy origination fees for multiple loans from existing customers.It should be noted here as well that the United Capital Source’s funding syndication platform has integrated via the respective Application Programming Interface (API’s) with the industry’s leading funding institutions. This has allowed us to decrease processing times of small business funding applications compared to other lenders. As a result of this efficiency, we are able to offer lower rates which we pass onto our clients.

Upfront origination fees are a legacy of the old banking industry. They are used to pay for lavish trappings like big offices and overpaid salaries for bankers. We live in the times where banks do not want to lend to small businesses and therefore we encourage all small business lenders to abolish up front origination fees.

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