When you are seeking out a business loan, never be afraid to negotiate on it. By doing so, you may be able to get the lender to agree to the terms and rates you would prefer.
What You Can Negotiate
Before agreeing to a loan, you can negotiate on the interest rate, repayment terms, and personal guarantees. Many people don’t realize that interest rates are negotiable. The more prepared you are to negotiate, the more likely you are to get a good rate. Repayment terms can be the most expensive part of taking a business loan, so it is important that you can meet the terms.
Read the clauses and fees closely to see if you can agree to them or you need to negotiate a better deal. The better your relationship is with the bank you are seeking the loan from, the more likely they are to believe your personal guarantee that you will pay off the loan in full.
Negotiation Tips
One tip for negotiating a business loan is to choose the banks you ask very carefully. Finding a bank that specializes in business loans is a good first step. But the second step is to find one that gives loans in your particular industry. Many banks are known for extending loans to one type of business or other.
Another tip is to understand all the relevant terminology before approaching potential lenders. This makes you less of a risk in their eyes because you know what you are getting into. The terms you need to be familiar with include balloon payment, default, financial covenants, loan-to-value ratio, and personal guarantee.
The third tip to follow is being prepared to meet with numerous banks. This involves obtaining and reviewing copies of your credit report and bringing three years’ worth of tax returns and financial statements. You will also need a personal statement that includes your business liabilities, income, and assets. In addition, you should get the lender to agree to prepayments so if you pay back the entire loan in one transaction, you aren’t charged a fee for it.
For more information on obtaining a business loan, please contact Growth Capital Team.