A business loan is one of the biggest financial commitments you will have in your life, which means you should be prepared to bargain for the best offer. In India, there are many banks that offer term loans, small business loans and many of them are negotiable. Therefore, you will have to negotiate for the best during the loan process.
Keep a detailed business plan ready at hand, before negotiating with the bank. This plan should give an overview of the purpose of your business venture, plans to run your business and how you intend to use the funds from the line of credit. Along with this, be prepared with detailed information like bank statements, credit reports, and your business vision. All this information boost the lender’s confidence in your ability to run a successful business.
Once you have done decided on the right banks which can offer you the loan, work out on the aspects of the financing which are of importance, what is non-negotiable and those which can be let go. Being prepared and knowing which conditions are the most acceptable for your financial need can help you make the most informed decision. It is always better to approach a bank that has a good long term relationship with you.
The interest rate is the interest fees charged for a loan. It affects greatly on your monthly payments. Negotiating a lower interest rate from your lender can lower your overall debt which makes it easier to repay.
Ask your lender for better payment terms so that it gives you the ability to save money and utilize your cash where required.
Your ability to repay the loan amount will uplift the lender’s confidence in offering you a business loan. Most of the lenders demand collateral to protect their investment, which they can later lease, manage, or liquidate in case of business failure and defaulting in repayments. In such situations, negotiate with the lender and try to limit your personal assets as security for your loan. Be aware of all the risks involved before signing the loan agreement.
Often lenders impose a penalty fee if you pay off your loan in one lump-sum payment. Based on your loan agreement, if you pay off your loan upfront, the lender accumulates less interest. So, most lenders may penalize you for making prepayments as it affects their balance sheet and total interest. Therefore, be careful of such prepayment penalties so that you can avoid making any extra payments.
It is recommended to negotiate for a prepayment option from the lender so that you can pay off your loan immediately if you have the opportunity without paying any penalty.
Determine the risk profile of your business and know if there are any deficiencies in your proposal. Look at your business through the eyes of the lender before negotiating an affordable and suitable business loan. When lenders offer you credit for your business, they will study all the risks associated with your business and the losses incurred by them if the business fails.
Apart from all this, the most important issue that you should take care of before starting any negotiation with your bank is – to have a good credit score. A good Credit Score makes sure that your business loan application doesn’t get rejected by the lender, and also gives you leverage to negotiate for the best deal.