Most small and medium business owners take a business loan at the same rate that their bank offers them. They believe that there is no possibility to negotiate business loan rates but that is not true. As per my experience and knowledge, there is always a possibility of negotiation for most loans. Whether, you are applying for a business loan, personal loan, or home loan, you should negotiate the rate of interest and other charges.
See, if you try to negotiate business loan rates with your banker or financial institution, you can get a better deal. Here are some most common things that you can negotiate.
- Rate of Interest
- Processing Fees
- Tenure of your loan
- Repayment Terms
- Collateral or Security
- Pre Closure
The power to negotiate business loan rates will depend on many factors. Mostly it depends on how you negotiate business loan rates with your banker. In this article, I am going to discuss 10 important tips which can be very helpful for you to get a good deal and reduce your total interest rate and other charges.
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1- Good Presentation of Your Business
Your confidence while dealing with your banker and your representation of your business are very crucial factors to negotiate business loan rates. Your lender will always focus to know about your business, repayment capacity, and most important factor your intention of taking a business loan.
You need to represent your business and its strengths very well to negotiate business loan. Your bankers might ask some questions regarding your business, and personal background. You need to be very confident and should answer all of the questions nicely. And it would be best if you also told about those good points of your business which show that your business is well established and growing.
Here, I would also advise that be honest and never over-explain anything. While giving a business loan, your banker may ask several questions. Here are some examples:
- What is the total vintage of your business?
- What is the nature of your business?
- What are your gross profit margin and net profit margin?
- Some questions may be about your banking behaviors and transactions.
- Question about creditors and debtors.
- About your personal background.
The question may be anything related to your business but mostly your bankers will ask only relevant questions from you. So don’t worry and be fearless to answer them. The more question they will ask, you have the better scope to negotiate business loan rates.
2- Do Not Show Over Neediness
When you apply for a loan, it is obvious that you have some need for money for your business. It might be some emergency working capital need or you have some growth plan for your business. I have the most important suggestion for you and that never ever shows your over neediness to your banker.
Because, if you will show your over-neediness, you may lose the power to negotiate business loan rates. Your banker will think that you will take the loan at the same rate that they offer you because you are so much needy right now and you may not be in a position to negotiate business loan rates. That’s why you should not show over-neediness for the loan. Your attitude should be like this:
- You have multiple options.
- You have many offers of better deals.
- If you don’t get a loan, there will be no problem. Your business will grow as usual.
- Show your attitude like they also need you.
See, this will make you confident, and will give you so much willpower to negotiate business loan rates very well. And this will give you a push to give you a better offer. When your banker meets you and asks questions of you, it should not be like a one-way game. It should not be like that they are only asking questions and you are answering them.
You should also ask some questions about the particular loan terms, conditions, rates, charges, and the bank also. See, you need to understand one thing, it is two side process. If you need some money for your business, then your bankes also need a customer for their business loan. So, don’t be confident and feel free to negotiate business loan rate.
3- Compare Online and Offline Both
Before you reach the table to negotiate business loan rates, you must do some home research about some banks. You should find 3 to 4 best suitable banks for your purpose. There are many banks and financial institutions in India to provide you with loans. But all of them are not equal. Like you have some strengths and weaknesses in your business, they also have some strengths and weaknesses.
Some might be good for providing personal loans or home loans. Some may be good for providing business loans and term loans. You just need to do some research and find out who is providing business loans at a good rate of interest and charges. It might take some of your time but it will be very beneficial for you.
I would advise, that you should compare your required business loan online and offline. It will help you to know at is going on in the market and what you can get the best.
4- Choose Right Business Loan Product
Selection of the right business loan product for your business is also important to optimize your total cost. If you are not taking the right product for your business loan, it might be costly for you. There are different kinds of business loans are available in India. Here are some examples of business loans:
- Term Business Loan
- Loan Against Property
- Overdraft Limit
- Startup Loan
- Machine and Equipments Loan
- Letter of Credit
- Working Capital Loan
You should select the loan products according to your need. It should not be like you select it randomly and take it. Here is some important thing that you must see in your business loan:
- Interest rate
- Processing fees,
- Documentation, Stamp duty, and other charges.
- Insurance charges, if any
- Payment tenure
- Terms and Conditions
- Pre-closure charges and guidelines
- Part-payment flexibility.
- Bank recovery behavior.
- Processing and documentation of loan
- Hidden charges if any
- Bank history and background
Before you apply and negotiate the business loan rate, you must know which product you want. When you meet your banker while loan processing, it should not be like you don’t know anything.
You should know why a particular loan is best suitable for you. For example, if you are applying for an overdraft limit, then you should know why it is best for your need.
5- Rate of Interest
Now let’s start talking about what you should negotiate. Interest rate is one of the major factors for your business loan. You must try to negotiate business loan interest rates with your bankers. There is always an opportunity to get a better interest rate for a particular loan. When you will research business loan product online and offline, you find that various rate of interest is going on in the market.
Different banks are charging different rates. If you have a well-established and growing business, and a good CIBIL score, you are in a good position to negotiate business loan rates of interest.
Though you don’t have a very good CIBIL or a very well-established business, you should always try to get a better deal. If you will ask then there is a chance that you get something better.
6- Negotiate Processing Fees and Other Charges
Depending on the business loan you apply for, there will be some processing fees and other charges. And there is always a scope to negotiate these charges also. You should ask your banker to give some good discounts on behalf of your good business and good credit history. In the starting, I told you about how you should represent your business, You need to focus on that factor also.
You can also show that you also have an offer of a better deal But for this, you have to do some research, online and offline comparison. Then you will know about the offers available in the market).
See there are a lot of things that you can represent to your banker to get a better deal. For example, Your banker is asking for 2% of processing fees. But if you have a very good business and a very good credit history, you can ask to charge only fees of 0.5% or 1% maximum.
It is all about negotiation. And to get something, you have to talk with full confidence. And as I above said earlier, never show over-neediness.
7- Choose Shorter Loan Tenure
Should you choose a long loan tenure or a short tenure? I must say it totally depends on the kind of need you have and the kind of loan you apply for. But Ideally, you should choose, a shorter loan tenure. It will be less costly rather than long-term tenure.
When you increase your tenure, the total payable amount gets increased. Ideally, if you don’t want to carry the burden of a big EMI, then you should go for larger tenure. But in case you are capable enough to handle a big EMI, you should opt for low tenure and save money.
8- Maintain Your Cibil Score High
Mostly, when you apply for any kind of loan like a Business loan, home loan, or personal loan, your CIBIL score will matter a lot. If you have a good loan repayment history, your CIBIL score will be in better condition. But in case, if you have any payment default, settlement, or bad credit history, your CIBIL score might not be good.
Bank in India checks your Credit history before giving you any loan. If you have a good CIBIL score, you would be considered a good customer and you will have a higher chance to get the loan. However, only a good CIBI score is not the only parameter to get a loan. Bank will also check other parameters and documents before disbursing a loan to you.
9- PayOff Existing Loans if Possible
When you apply for a business loan, the bank will check your debt-to-income ratio. And it would be one of the major factors to decide how much money, they should finance you. When you pay off your existing loan, your debt-to-income ratio gets improved. And there is a higher chance to get the maximum loan.
There are multiple factors behind the decision of giving you the final amount of the loan. However, your monthly gross income, net income, and your monthly expenses are some major factors to calculate the loan amount.
10- Read Terms and Conditions, Hidden Charges
Before you finally sign the loan agreement with your bank, you must go through the terms and conditions of the bank. You must go through the terms of the major and minor things of your loan. Here is a list of some important factors:
- Interest rate, process fee, and other charges
- Terms of a personal guarantee.
- Collateral and security if any.
- Bouncing charges, and other penalties.
- Insurance premium cost and its terms
- Pre-payment and part payment guidelines and charges.
- Final loan amount, tenure, and other related terms and conditions.
There might be various important things, that you should know. If you are aware of the terms and conditions at the start of the processing of the business loan, you would not be shocked for any reason at a later stage. That’s why you should discuss everything clearly with your banker in starting of processing of your file.
Conclusion – Negotiate Business Loan
There are various good banks like ICICI Bank, HDFC bank, Etc available in India. As a business owner, you may need short-term loans and or long-term loans for the growth of your business. A business loan is one good option to get money from banks to infuse working capital, purchase machinery, purchase stocks, etc.
There is always a good chance to negotiate a business loan rate but as I above explained, you need to be confident, and careful and need to maintain the health of your business and CIBIL score. Competition is there in the market, and you have multiple options to choose from. It is just a matter of finding out the right choice for you.
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