Tips on Negotiating for a Business Loan

Negotiating for a Business Loan

If you're planning to take out a business loan for your business but are apprehensive about it, you shouldn't be. There are many good reasons to take out a business loan, and one of the most common is to expand your business.

If the financial burden of a loan is making you nervous, there are ways for you to negotiate some aspects of it. With that in mind, before we talk about the tips you need to learn about how to negotiate a loan, let's talk first about the things that are negotiable.

What parts can be negotiated in a business loan?

Many people think that business loans are fixed and predetermined. However, you can negotiate some of the aspects. The first and most crucial factor you can and need to negotiate is the interest rate. This may surprise you, but you can often negotiate a much lower interest rate.

Your monthly payment depends significantly on how high your interest rate is. Obviously, the lower the interest is, the shorter your repayment terms can be. That said, aim to talk to your lender with that goal in mind.

You can also often negotiate prepayment terms. Some lenders require a fee whenever you pay early or late. You can discuss with your lender to either lower the fee or not penalize you for paying off your loan early. Lenders are also open to negotiating with regard to the repayment term of your loan.

As you examine the terms and conditions of the business loan, check for things that might make your repayment harder. Most of the time, repayment terms are more difficult to negotiate. But if you have a good credit score and good standing with the lender, they may agree to more favorable loan terms.

Personal Guarantees

Most business loans require collateral to ensure that the borrower will pay the lender back. While many people think of this as a natural part of a business loan, you can negotiate with your lender about this matter. However, this aspect of the business loan can be negotiable if you have a good credit score and have a good standing with the lender.

Now that you know what aspects of a business loan can be negotiated, here are some tips on negotiating with lenders when taking out a business loan.

Find the Right Lender

Experts recommend that you shop for the best loan product before you take out a loan. Every lender has their own specialty, so it's a waste of time if you're trying to take out a business loan from a lender with little to no experience in that field. You can start by looking up every lender in your area, as well as alternative online lenders like CreditNinja online. Then, see which of them can help you the most. Remember, it's always best to have options in any negotiations, and it is applicable here.

Dress Up Your Business

Preparing for loan negotiations is like getting yourself ready for a big date.  Present your business professionally and honestly. Include both a thorough business plan and a secure business model. Make sure you have all the necessary documents and file them in order, in advance.

Know the Risk Profile of Your Business

You need to know your business's risk profile beforehand. This is so it will not take you by surprise if the lender notices it first. Identify your business model's weaknesses and see if you can rectify them before they threaten your ability to get a loan. Once risks have a solution, you can negotiate aspects of your loan more smoothly.

Try to Limit Your Personal Guarantees

If you own a small business, you should be wary when discussing personal guarantees. Some lenders require personal deposits, and sometimes, they even require more collateral in addition to your business property.

This personal guarantee means that if you default, the lender will have the right to seize your business property, a personal asset, or sometimes both. Always be careful when picking your personal guarantee and obviously, don't use something that might put you in financial jeopardy as collateral.

Use Competition as an Advantage

This comes in handy with shopping. Ask each lender to quote you some interest rates and repayment terms. Take notes and use this information when negotiating for a business loan. By indirectly quoting another lender's offers, they might just loosen their restrictions. In fact, they may even offer a more excellent loan product.

To Summarize

Although most business loans are set in stone, there is a chance to negotiate with them. Even regarding their interest rates and repayment terms. Customizing your loan to suit your business needs will make repayment easier. Therefore, causing less financial stress on the business. Remember, negotiating for more favorable loan terms has a higher chance for success if your credit score is in top shape and you have an established relationship with your lender.

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