Although many small businesses do borrow funds, smart business owners still look for ways to
lower the interest rates for those business loans. The repayment of loans can quickly spiral out of
control; sometimes, based on the amount borrowed, loan details, and the health of the company.
However, we need to understand how some company owners afford to lower those interest rates.
Below are some of the actionable ways that can work for business owners:
6 Tips to Reduce your Business Loan Interest Rate
1. Assess your lender’s expectations:
The business loan interest rate is the lender’s way of shielding itself from the risk of the
downturn or failure of a business. So you would need to understand the lender’s expectation.
Once you can identify the expectations, meeting all of them, if not most of them could lead to a
the decrease in interest because you are consciously making a safer bet for your company.
The government is encouraging financial institutions to provide necessary funds to growing
businesses. Therefore, if you can understand the various terms and conditions of a lender, you
have higher chances of a quick loan with low-interest rates.
2. Boost your credit score:
For any lender, one of the first and most relevant indicators is the personal credit score of the
business owner. Therefore when you’re trying to obtain the lowest possible interest, you might
want to enhance your credit rating to increase your chances. Improving a credit score is no
secret, and you need to analyze your creditworthiness, pay off smaller loans, credit card bills if
any.
A smart person in business would keep his/her personal finances away from the company
finances. However, that does not mean that your credit score is not a valuable measure of your
debt repayment history. Boosting your credit score is an effective tactic to prove to the lender
that you’re a qualified borrower. In the future, if you do plan to secure another loan, raising your
credit score can make things work in your favour.
3. Getting prepared for the process:
It’s necessary to have done a significant amount of preparation, mostly before you’ve acquired a loan. Most of the time, you might end up with a loan with a reduced rate of interest. Assume that
you are looking for an online business loan, you would look up various details about the loan
before applying the same. Such preparation is quite vital for the entire borrowing experience.
For your company, there are countless different ways to borrow money.
Some loans are impossible to apply for, loans that take a long time, loans you pay back regularly, and every sort of thing in between. And one way to ensure that you pay the lowest interest rate possible is to complete the research needed to recognize that you have borrowed from the best possible lender.
Doing your research guarantees that you are looking for your loan in the right spot, resulting in
the best interest rate for your situation.
5. Refinance the debts of your company, whenever possible.
There are several cases where the only way to lower the business loan interest rate is to refinance
the debts of your company.
Refinancing can be considered if you have obtained several loans at high-interest rates at the
beginning of your company, and your finances have improved. Depending on the improvement
in the financial health of your business, you could merge the outstanding loans into a single loan,
i.e. debt consolidation resulting in a reduced interest rate.
Alternatively, suppose you had started your company with a high-interest rate short-term loan,
you might use the improved business conditions to secure a longer-term loan to cover the initial.
In this way, you pay a lower interest rate, the original lender is compensated, and the new lender
is in a transaction with a partner (you) who can pay them back in full.
6. Providing confidence to the lenders.
Be it at the commencement of a loan process, or during the refinancing, or somewhere in
between, you would need to meet or otherwise talk with a lender representative typically. Hence
it is crucial to understand the involvement of human factors.
The first question in any lenders mind would be – What are the chances that this individual
company will repay the loan?
Therefore, when you have a rendezvous with lenders, make sure that you are thoroughly prepared.
You should be able to answer any questions about your business and the vision, mission
statement altogether.
Conclusion:
The above pointers indicate that you should prove to the lenders that there is no risk that you will
not repay the loan. When you have demonstrated that you are not at risk of failing to pay, they
would be much more likely to decrease your business loan interest rate or start you off much
lower from the beginning.
