Are you about taking a loan or you want to re-negotiate a loan? If YES, here are 7 smart tips on how to negotiate interest rate on a business loan successfully.
Sometimes, accumulating some debt can be necessary to keep your business afloat. Even you have started on a bright note after careful planning and strategy, running into debt might be inevitable. What you should avoid, however, is getting your business so neck-deep in debt that you find it hard to carry on.
According to the Small Business Administration (SBA), more than 1,000 businesses in the United States close down daily due to bankruptcy. This staggering statistic shows how inevitable debt could be. But your business doesn’t have to go the bankruptcy way. And you shouldn’t lose your business simply because of financial hardship.
When your business starts to falter because of too much debt, you have another option aside filing for bankruptcy. And that’s re-negotiation of interest rate.
Why You Should Re-negotiate your Loan Interest Rate Today
Why negotiate interest rate? The reason is because interest is the commonest reason why most businesses are unable to get out of the quicksand of debt. If your business gets a loan of $100,000 with the requirement that you will pay 5% monthly interest, you would have owed interest that totals more than the principal if you are unable to pay anything for two years due to financial problems. Now, you know how quickly interest could cripple a business when it adds up.
Negotiating interest rates with your creditors might provide the shortcut you need out of the quandary of debt. If you are comfortable with walking into a shop and asking the retailer for his best price, then you should be able to do so with your bank or creditor.
You will be surprised at how much you can save by negotiating the interest rate on a loan. While a vast majority of financial institutions invites you to negotiate for balances between $100,000 and $250,000, there is nothing stopping you from negotiating for lower balances.
Negotiating in order to get the best interest rate is key to making extra money in the long term. With this in mind, let’s now discuss the steps involved in negotiating a debt with your creditor or financial institution.
How to Negotiate Interest Rate on a Business Loan Successfully
1. Improve your credit score
Lenders will use your credit score and your debts to assess your chances of keeping up with your monthly payment. If you have a low credit score, your interest rates will be high. Rather than apply for a new credit card, improve your credit score by paying bills on time and paying off your debts. The higher your credit score rises, the lower your interest rates will be.
2. Make a huge down payment
The larger the down payment is, the lower the interest rate you will pay. Ask your lenders about the cut-off point points for the size of the down payment. Sometimes, you might need to add just $5,000 or $10,000 to your down payment to bring down your interest rate by 10% or more.
3. Compare multiple offers
You might need to check with two or more brokers or lenders to get the best offer. However, you must bear in mind that brokers get commissions from both the lender and you. So, you might want to deal with your lender directly. Where you have more than one option, go with the lender that offers the lowest interest rate.
4. Ask about and negotiate associate fees
Aside the monthly interest, there are usually other fees and costs associated with the loan. Many of these are negotiable, though.
5. Lock in the interest rate
Once you are comfortable with the terms of the loan, lock in the interest rate to protect yourself against potential increase in the rate. And if the rate goes down while you are processing the loan, ask your lender about the possibility of getting the lower interest rate.
6. Organize a meeting with your lender
Scheduling a one-on-one negotiation meeting with your lender can help you get the reduction you want because physical interaction is far more compelling than communicating over the phone, via email, or through written proposals.
Be punctual at the meeting and present your proposal well. Use the opportunity to demonstrate commitment, enthusiasm, and business acumen. This will encourage the lender to empathize with you and come up with a plan that will favor your business.
During the negotiation meeting, do not become aggressive or argumentative—even if the lender is not dancing to your tune. Do not be over-optimistic so you won’t be too disappointed if your negotiation request is turned down. And do not expect the lender to have more confidence in your business than you do. That will never happen.