Last Words

Q: I recently refinanced my company's existing debt and was astounded by the loan's closing costs. I almost walked away, but the terms were too good to pass up. Could I have done something to lower my closing costs?

A: Most people are so thrilled to get approval from their lenders, they forget to ask how much it will cost to get the check. Normally, closing costs include commitment or facility fees from the bank itself as well as the fees incurred by third parties to close the loan according to the lender's requirements. These costs may include title searches, appraisals, environmental studies, attorney fees and taxes.

You can negotiate closing fees, but only if you are dealing from a position of strength. If your credit is excellent, you have a strong financial statement and you have the potential to move large deposits to the institution, the bank may waive their commitment fee to get your business. On the other hand, if your loan is viewed as a stretch, the bank has you where it wants you and will probably tally up as much as you can stomach.

In the future, to avoid a surprise like the one you experienced, ask your lender for a good-faith estimate of your closing costs ahead of time. If you don't like the sound of that number, try to negotiate a lower commitment fee. It's best to forget about lowering third-party fees; they're not set by the bank.

Don't get too frustrated by the negotiation, because most lenders won't budge. They make money off of the commitment fee they charge you and are loath to lower it. Just breathe deeply, remember why you entered the entrepreneurial arena in the first place, and try to view closing costs as part of the necessary evil of borrowing money.

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Doug Hood is a co-founder of Rainmaker Capital Corp., a capital acquisition consulting company in Cartersville, Georgia. Co-founder Marilea S. Hood contributed to this article. Send questions or anecdotes via e-mail to doughood@rainmakercapital.com.