Business loans are the preferred external funding for carrying out business operations efficiently. Be it a working capital requirement or a fixed asset purchase, you have a business loan tailored to your needs. The interest rate of a business loan ranges from 10% to 24% depending on the loan type. Do you know that you can get your business loan at a lower interest rate than your lender’s offer?
Read to know the six basic strategies to lower business loans interest rate.
Improve Your Credit Score
A credit score above 750 is the ideal credit score expected by any lender. It means that you are a creditworthy business repaying all the debts promptly and making judicious use of available credit. The consistency of maintaining a good credit score is also very important from the perspective of a lender. If you are frequently patching up your credit score for getting new credit or at discounted interest rates, it may not go well with your lender. A good financial discipline is that you repay your credit obligations on time without any external drive. This significantly reduces your financial burden as well. The lender will feel comfortable in providing loans at low-interest rates considering your good credit profile.
If you are struggling to improve your business credit score, try these steps to get back to the good books of your lender.
- Take steps to clear your existing outstanding. Give importance to loans or cards with a larger amount of outstanding.
- Do not miss any EMI payments and ensure your bank account is adequately funded.
- Pay the credit card bills on time. If your credit score is bad, stop using credit cards for withdrawing cash.
- Do not close your credit cards, if you do not use them regularly. Having unutilised credit limits improves the Credit Utilisation Ratio, thereby improving the credit score.
- The improvement in your monthly income can boost your repayment capacity and convince the lender to offer lower interest rates.
- Stop applying vigorously to various lenders for loans after your loan application is rejected. It is good to wait for at least 3 months to make a new application after rejection.
- Be systematic and regular in the approach you follow to improve your credit score. It will help in achieving your desired credit score in a shorter period.
Improve Your Business Profitability And Cash Flows
Business profitability and revenue growth are the next important factors after credit score. Any lender will study your business financial performance deeply to understand your repayment capacity. In simple terms, the lender would expect the business to earn sufficient cash profits to repay the interest on loans. Hence, you need to focus on improving the revenues, and cutting off unnecessary expenses to improve profitability. If your business is representing consistent growth, the lender will invariably prefer to lure you with lower interest rates on loans.
Have A Solid Business Plan
The life of a business is perpetual, as long as the owners voluntarily liquidate it. Hence, you must have a practical business projection for at least 5 years for increasing the volume of sales, clientele, margins, production capacity, and expansion of business. This can give visibility to the lender as to how his money will be repaid. Once the future of your business is established, it can convince the lender to provide lower interest rates on business credit.
If you are owning immovable properties, it is a good idea to offer them as collateral for your loans. This adds security and assurance to your loans and the lender will consider reducing the interest rates.
You can make use of the competition prevailing in the market. You can do a balance transfer to a new lender offering lower interest rates on business loans.
Create And Maintain Healthy Relationship With Lenders
Your good relationship with the lender can influence the chances of getting lower interest rates on your business loans. Apart from repaying on time, submitting the required documents, and keeping the lender informed about important changes can create confidence with the lender.
Your healthy financial practices within and outside the business can earn and save you more. While getting a business loan can be tough, getting it at your favourable terms can be tougher. Hence ensure you are consistent in repaying all your business loan obligations to get credits at attractive terms.
FAQ of 6 Ways to Lower Business Loan Interest Rate
1:What is the interest rate on business loans?
The interest rate on business loans ranges between 10% and 26%. It varies according to the lenders, credit score, amount of loan, and loan tenure.
2:How much credit score is required for getting a business loan?
A credit score of 750 and above can get the required amount of business loans with lower interest rates. However, a credit score between 650 and 750 is decent enough to get a business loan.
3:Can a sole proprietor get a business loan?
Yes. A sole proprietor satisfying the business loan eligibility criteria and sufficient documentation can get a business loan.
4:Can I bring a co-applicant for my business loan?
Yes. You can. In that case, the co-applicant also becomes responsible for repaying the debt obligations.
5:What are the eligibility criteria for a business loan?
- The applicant/owner should be between 21 and 65 years of age.
- The business should be in existence at least for 2 years.
- The applicant shall be engaged in the business of manufacturing, trading, or services.
- The minimum turnover shall vary according to the lender. However, the business shall be earning a minimum of Rs 10 lakhs for getting a business loan.