Convincing a bank or any other financial institution to give a loan with favourable terms is a huge challenge. This is because most banks have a negative attitude towards small businesses. They actually regard doing business with small enterprises as risky. This is due to the fact that such businesses can collapse and leave them counting losses. That’s why these institutions usually offer loans that attract high-interest rates which can make them hard to pay off. They use it as a strategy of ensuring that they get almost all their money within a short duration of time. Here are simple steps to get a business loan at the best rates when applying.
1. Organize your Financial Statements
Since your business may not have any tangible asset that can be used to secure the loan you are applying for, it’s advisable you organize your financial records. In fact, financial records normally reflect on the performance of your business. By simply glancing at financial records, you can tell whether an enterprise is profitable or not. You must, therefore, keep the documents that show how you have been paying your employees and vendors.When your files are well organized, you can even take advantage of Invoice Factoring by banking on the services or products that are yet to be paid for by your customers. If you have an outstanding debt, you should pay it before applying for a loan. This is because most lenders will consider your credit score when setting the interest rate. In case your credit score is poor, you will obviously get a high-interest rate loan and vice versa.
2. Build Relationship with Lender
You can’t wake up one day and expect a lender to give you a favourable loan rate. Before you apply for a loan, you should identify a potential lender and seek to establish a lasting relationship with them. In fact, most banks give their loyal customers a low rate as a way of rewarding them. You can start by opening a business savings account with the lender that you intend to borrow money from in the near future. You should then wait for sometime so that your financial history can accumulate. This will actually create an impression that you are with them for the long term. Once you have built rapport with the lender’s staff, you can literally ask for a discount when applying for the loan.3. Compare Various Offers
The worst mistake when hunting for the best business loan rate is taking the first offer that’s put by your bank. We are actually past the era when they're just a few lenders. Nowadays there are thousands of lenders that are interested in doing business with you. You should, therefore, approach various lenders and settle for the one that offers a fair deal. As a matter of fact, there are traditional banks and virtual lenders that conduct their business over the internet. This means that you don’t have limited options.4. Opt for Upcoming Lenders
There are basically two categories of lenders; those that have a huge client base and the upcoming. The latter usually offer better terms because they are yet to make a name for their brand. They actually use low-interest rate to attract more customers in an attempt to outsmart the giant industry players. On the other hand, established lenders will rarely give you the best bargain in the market. This is due to the fact that they have many clients.5. Specify Why you Need the Money
Most lenders want you to be transparent as much as possible. They want you to account for every cent that you are borrowing. This helps them in determining if your enterprise is viable. In other words, they want to see a comprehensive breakdown of how the profits will be generated and how you will repay the money back. Some of the most common reasons entrepreneurs give include:- Buying equipment
- Recruiting more workers
- Boosting inventory
- Marketing campaigns
- Product development
- Acquiring new facilities