Learn How Smart Entrepreneurs Get the Lower Business Loan Interest Rate
New Delhi : A small business owner may borrow a Business Loan to purchase new machinery, hire new staff, build working capital, restock inventory, invest in expansion, plan a marketing strategy, etc. However, it always comes at a cost: the Business Loan interest rate borrowers pay for the loan.
Obtaining an SME loan at lower interest rates will save the business money and time and assist in sooner debt repayment. How does a smart entrepreneur accomplish this? They follow these tips to get a low-interest rate Business Loan for all SME operation or expansion needs.
They Understand the Factors Affecting the Interest Rates
Interest rate is the additional amount NBFCs charge for lending their money for a period. With the interest rate, they want to secure themselves against the company's chance of failure or decline. Before analysing how to lower interest rates, understanding the factors affecting them is essential.
Aspiring borrowers must understand what lending institutions seek and what red flags cause them to charge a higher interest rate. After identifying these problems, one can resolve them to assure the lending institutions and attract a lower Business Loan interest rate. That is because smart loan seekers actively make their company a safe investment for lending institutions by improving their eligibility.
They Take Time to Do Proper Research
Conducting a good deal of research is crucial before applying for a business loan online. While looking for additional funds, one may come across several funding options, from short- and long-term loans to secured and unsecured ones. The same applicant might get different interest rates from various lending institutions depending on several factors according to the NBFC’s policy. Therefore, smart borrowers conduct proper research to ensure borrowing money from a customer-friendly NBFC. They do some homework and search for a loan plan that best suits their needs.
They Consistently Maintain a Decent Credit Score
A credit score above 700 is the perfect score that most reputable NBFCs expect. It indicates that the applicant is a creditworthy business owner with a history of prompt debt repayments. Maintaining a consistently good credit score is essential from the lending institution’s perspective. Those who frequently patch up their score to get new credit do not go well with financial institutions. Repaying loans on time dictates good financial discipline that also reduces financial burden. NBFCs feel comfortable offering loans to borrowers with good credit scores at low-interest rates.
Those struggling to improve their business credit score must try these tips to get to the good books:
● Clear existing and outstanding balances while prioritising cards or loans with large due amounts.
● Never miss EMI payments and ensure funding of the bank account adequately.
● Pay every credit card bill on time. Those with poor credit scores should avoid using credit cards for cash withdrawals.
● Retain old credit cards even if you do not use them regularly. Their unutilised credit limit will reduce the Credit Utilisation Ratio and improve the credit score.
● Improve monthly earnings to boost your repayment capacity and attract a lower Business Loan interest rate from lending institutions.
● Stop applying for more loans vigorously after getting an application rejected. Wait for at least three months to re-apply after rejection.
A regular and systematic approach will help improve the credit score in a shorter period. However, be patient and instil financial discipline to achieve the desired goals.
They Have Proven Trustworthiness
Borrowers often communicate with the NBFC's representatives while applying for a loan, negotiating lower interest rates, refinancing, or any other term. Smart entrepreneurs looking for loans have clever business strategies to impress lending institutions and secure the required funding. Therefore, considering the human factor is crucial to prove trustworthiness. SME loan providers consider applicants as potential bets. So, they want to gauge the odds of getting their money back. Thus, applicants must stay prepared while negotiating with their financial institution. Spend energy and time developing an impressive business plan with realistic goals, funding strategies, and solid financial documents.
They are open to Debt Refinancing
Debt refinancing is the best solution to reduce the business loan interest rate in various situations. Many entrepreneurs take several high-interest loans during the set-up phase. However, they can refinance those loans to better loan plans at reduced interest rates and easier terms and conditions when the finances improve. Some entrepreneurs also perceive refinancing as a good strategy for running their company during low times.
They Make On-Time Repayments and Prepay Whenever Possible
Undoubtedly, timely debt repayment is essential to maintain creditworthiness and build a strong relationship with the NBFC. Moreover, prepayment also helps reduce the loan burden significantly. Prepaying the loan fully or partially is a good strategy to reduce the financial burden and save money on the interest cost over time. We all know that full repayment eliminates debt. Similarly, part prepayments reduce the loan burden and lower the interest amount to be paid.
They Build Good Relationships With Their Lending Institutions
Loan providers look favourably at their existing customers with excellent repayment histories. As a result, they get more negotiating power to attract lower interest rates on new loans. Making timely EMI payments, delivering the required documents when requested, and conducting transparent business activities are crucial to establishing good working relationships with lending institutions. Besides, keeping the NBFC informed about significant changes creates confidence and develops trust.
They Maintain Good Business Financials
Before applying for a Business Loan online, the business owner must update all company financial records. Lending institutions consider the company's annual turnover, business performance, age and vintage, and financial position while determining the interest rate. That means improving the financial statements results in attracting lower interest rates. After reviewing these statements, it becomes easier for lending institutions to determine the applicant's creditworthiness and offer the best interest rates.
The common element among all these suggestions is demonstrating the applicant's reliability and repayment capacity. The most crucial step is to show potential loan providers that there is no possibility of loan default. Once NBFCs realise they are not at risk of default, they are likelier to offer lower Business Loan interest rates to applicants.