Business Loan Retainer Fees

Retainer fees are "standard business practice" for some (but not all) business loan situations. It is understandable that a commercial borrower would rather not pay such a business loan fee, so it is important for a commercial borrower to understand when it is more likely to be necessary. In fact a business loan retainer will not be necessary in many business loan scenarios. This is especially true of commercial financing such as business cash advances that takes less time and produces funding within just a few days.

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Commercial Financing Specialists

For more time-consuming business loan processes, it is increasingly common for a retainer fee to be paid during the preliminary stages. This is especially true when working with business loan consultants that specialize in commercial financing. Most advisors who work with residential mortgage loans (and perform business loans as a sideline to their main business activities) will not charge a retainer fee because in many/most instances they are legally prevented from doing so by certain state and federal regulations (in other words, it is likely that they too would charge a business loan retainer fee if not legally prohibited from doing so because of prevailing residential loan compliance issues).

So why wouldn't a commercial borrower who doesn't want to pay a retainer fee simply work with someone who doesn't charge a retainer fee? Many business loan situations are too difficult for the average residential loan advisor to handle successfully. Similar to a person seeking a more expensive medical or legal specialist to help them when confronted by a serious medical or legal problem, most commercial borrowers have come to realize that business loan problems are frequently just as serious and complex and deserving of a commercial financing specialist. It is in these situations when a commercial 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 commercial loans.

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Does a Commercial Borrower Want the Best or the Cheapest?

I have stated elsewhere that one of the most important lessons to be learned from a thorough analysis of commercial financing "trade-offs" is that the lowest rate is ALMOST NEVER associated with the best deal for the commercial borrower. A similar observation based on over 25 years of business loan experience: the lowest business loan fees are also rarely associated with the best deal for the commercial borrower.

The fees charged by business loan specialists (including retainer fees when appropriate) are almost always higher than loan advisors 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 ultimately realize that perhaps it is better to use the "best" business loan advisor rather than the "cheapest" business loan advisor.

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Typical Business Loan Retainer Fee Range to Expect

The most typical range for business loan retainer fees is $2500 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 advisor for some of the initial time and expertise required to place the business loan; (2) to serve as a "good faith" deposit toward the overall commercial financing fees; and (3) to focus the borrower on working with one business loan advisor. The third reason might be the most important of all. With difficult commercial loans, it is extremely counterproductive for a commercial borrower to be working with multiple business loan advisors (regarding the same loan). Once a business loan retainer fee has been paid, a commercial borrower is likely to be more comfortable in working solely with the business loan advisor who received the retainer fee, and with difficult commercial loans, this unified approach is likely to be more successful. It is this success that ultimately justifies the business loan retainer fee.

Commercial borrowers will usually agree that business loan retainer fees are particularly justified in more difficult business loan situations. These business loan circumstances will typically require both more time and expertise than a straightforward business loan, and a business loan retainer fee should be viewed as partial advance payment for both of these important commodities (time and expertise).

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