I am considering opening a line of credit for my business. What kinds of expenses are involved? For example, will I incur a charge even when I have no need for borrowed funds?
In addition to the interest expense charged on any drawn portion of the line of credit, most borrowers will incur costs related to legal and documentation fees, commitment fees paid to the lender at the time of closing, and fees paid throughout the life of the facility on the average unused portion of the line, often referred to as an unused fee. However, the unused fee is a fraction of the stated interest expense on the line
Lines of credit that are viewed as being highly dependent on the value of the assets securing the facility will often have fees related to the monitoring of the collateral. Some states have certain tax costs associated with loans as well (for example, Florida has documentary stamp fees). If the facility is too large for one lender to facilitate, a syndicate of lenders may be formed to provide the capital. In this instance the borrower would incur arrangement and syndication fees.
Brooke Barber, Vice President, Middle Market Banking, Atlanta, GA
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