The Burden of Borrowing Your growing company could be hindered by hidden loan costs if you don't look ahead.

Like many growing companies, Safe HandlingInc., a transportation and warehouse services business inAuburn, Maine, has relied on a range of credit during its 12-yearhistory: funding for equipment purchases, working capital loans andterm debt, often from multiple lenders. While meeting eachcreditor's reporting obligations is time-consuming, the biggerconcern is how these collateral issues could jeopardize futurefunding for the $5 million-plus company. It has even paid off loanbalances rather than allow a lender's requirements to stiflegrowth. "We are mindful of the alternative of paying off alender to maintain simplicity for growth," says CFO BillHowell. "We need to be positioned for future borrowings tofund growth, and we can't do that with onerouscollateralization requirements."

Often, the indirect costs of borrowing, such as burdensomecollateral conditions, have more impact on a growing business thanthe loan itself. A bank may require the borrower to keep a certainpercentage of the outstanding loan balance in an account, forexample, or charge a penalty if any of the loan principal isprepaid. Even firms with straightforward financing needs shouldbear in mind that a variety of factors determine the cost of aloan, not just interest rates and fees a lender charges forreviewing and preparing documents.

While bank competition has given entrepreneurs increasedbargaining power over interest rates, many indirect loan costs arenon-negotiable, including the expense of updating a business plan,paying an accountant or lawyer to meet pre-closing requirements,and providing a lender with ongoing financial reports.