6 Tips To Reduce Your Business Loan Interest Rate

Business loan interest rates can have a debilitating effect on an individual as well as a business. It eats into the financials and is recurring by nature. Many financial institutions have flexible business loan interest rate systems and users can always become a part of them.

A business loan is such that it should have a multiplier effect on the enterprise and not pull it down. Unfortunately, due to a variety of factors, some loans do end up doing the unthinkable. They drown the loan seeker into a never-ending financial spiral.

However, there are ways this can be mitigated. Here are 6 tips to reduce your business loan interest rate.

A solid and well-structured Business Plan

A sound business plan is a mainstay for any business. It is also the basis on which a business loan will be approved. Most financial institutions rely on a few information and a business plan is one of them. A business loan interest rate will also depend on this. An effective business plan gives the impression that the business is reliable and has enough liquidity to return the money. A good business plan is one of the best ways to convince a lender about the viability of the business.

Credit Score

When it comes to a business loan or even an MSME loan, it is important to have a good credit score or a score that qualifies. A good credit score convinces the lender like no other. Maintaining a good credit score is dependent on a few factors:

• Paying the credit card bills on time
• Any previous loans need to be repaid on time
• EMI to be paid on time and no defaulting on payment

It also needs to be remembered that there are financial institutions that allow a business loan for less than stellar credit scores but at high-interest rates.

 A long-running company

Financial institutions are fond of vintage. They look for entities that have been in business for a long time. These companies over the years have built a reputation for good banking etiquettes and have great credit scores. An organisation with a legacy is more likely to get a business loan at competitive rates compared to a new one.

Being an unknown organisation adds to the risk factor for the lending party. However, new companies can take heart to the fact that with time they too would become vintage and financial gold for banking institutions.

Profitability

A lender will always go through the financial record of the companies. If a company have been making loads of money and posting healthy profits, it will be the focus of most financial organisations. Boosting one’s profitability is one of the most important methods to attract lenders and getting a business loan at a reduced rate.

Collaterals that matter

Providing collaterals that are valued greatly will force the lending organisation to reduce the interest rate. An interest rate is a type of collateral by itself. A tangible asset put up as collateral act as a protection against defaulting of payment. This automatically leads to a reduction in interest rates. Most businesses availing of an MSME loan undertake such a route.

Moreover- Be a good client

Everyone loves a good relationship. Building one takes years and has great advantages. Become a valued customer of the bank and reap the benefits. Good financial relationships are built based on great repayment history and maintain a good credit score. These are important assets.

Lastly, the Reduction of interest rates is essential to the running of a company and is of great help financially. This can be discussed when you apply for a business loan or during checking the business loan eligibility. Preparing all documents required for a business loan is also one of the methods to availing a loan at a reduced rate. Get them all straight and reap their benefits.