Business loans can help you finance key business investments, such as buying new equipment or upskilling your workforce. However, the loan terms can dramatically impact your company’s financial health and success. For example, low interest rates can save you money, increasing your investment ROI.
Securing the best loan terms requires careful preparation and research. To help out, this article explores some strategies for finding excellent loan terms that help you grow your company.
1. Improve Your Business Credit Scores
Your business credit score is one of the most important factors when you apply for a small business loan. A higher credit score increases your approval chances, qualifies you for larger loan amounts, and lets you access the best interest rates.
Here are some tips to improve your business credit scores:
- Pay all your bills on time
- Maintain low credit balances
- Keep accounts open, even if unused
- Avoid applying for credit too frequently
- Check your credit reports regularly and dispute any errors
2. Strengthen Your Business Finances
Business finances demonstrate your ability to make loan payments. Revenues, expenses, and profits are all important for functioning businesses. However, cash flow may take precedence as it represents your cash on hand, indicating your ability to make loan payments.
For example, you could make significant sales on credit but lack the cash to make your loan payment. This is why lenders like to see strong cash flows. Regardless, providing strong financial statements and thorough financial projections can boost the lender’s confidence and help you get the best business loan terms.
3. Shop With Different Lenders
Lenders may differ in the algorithms and formulas they use to evaluate applicants. They also need to compete for business, so shopping for preapproval quotes from different lenders could result in varying loan terms.
You can compare your quotes from different lenders to find the best rates and terms. For example, one lender may offer a lower interest rate than the others, helping you save on interest. On the other hand, you might prefer a longer repayment period and are willing to pay more in total interest on smaller monthly payments. Shopping around can help you find loans with longer repayment periods as well.
4. Consider a Secured Loan
Secured loans require you to put down an asset, called collateral, to obtain the loan. The collateral protects the lender in case of default because they can seize the asset in such a scenario. This risk reduction allows them to offer lower rates, longer repayment dates, and larger loan amounts. Secured loans may work best for larger investments in hard assets, such as equipment or real estate since the asset itself can serve as collateral.
5. Explore Government Loans
The Small Business Administration (SBA) runs loan programs that offer loans with favorable terms through private lenders. The lenders themselves make the loans, but the SBA guarantees them. This reduces the lender’s risk, helping them provide lower interest rates and longer repayment periods.
Several SBA loan programs are available, each with different criteria. Lenders may have additional requirements that are above SBA’s requirements. Visit the SBA’s website to learn more, and make sure to compare lenders.
6. Build Relationships with Specific Lenders
Sticking with certain lenders long-term could help you secure more favorable terms and enjoy other benefits. The lender gains more evidence of your creditworthiness and ability to repay loans. You demonstrate less risk, even beyond your credit score and finances, so the lender is willing to lend more.
Also, the lender gains a valuable long-term customer, and you would gain leverage in future loan negotiations by providing them with regular business. Lastly, the application process could become smoother as the lender gets to know you and your business better. They may even be able to help you find the best loan options for specific projects or investments in your business.
Get the Best Loan Terms
Finding the best business loan terms requires research, careful preparation, and a strategic approach. Start by maximizing your business credit score and strengthening company finances. Then, shop with different lenders, considering whether secured loans may be optimal, and see if government loan programs could work for you.
Build a relationship with your lender for better financing in the future. Getting excellent business loans may take some extra work, but the financial payoff for your company can be well worth the effort.