Looking for a loan to fund the needs of your business? Wise of you! However, be wary of the interest rate you are charged. Interest rates levied on any loan essentially reflect the overall risk involved with lending the funds to an individual borrower as well as the external factors regulating the financial market. Same is the case with a business loan.Business loan interest rate may be affected by a range of factors, which you need to understand well before submitting the loan application. Read on.
Go for a market-wide lender comparison
The first and foremost step to availing the best business loan interest rate is to go for a market-wide comparison of available lenders. At first, it will give you a better idea regarding the interest rate range within which lenders offer you the advance for your business. If you are well-informed, it will also help you find out the lender offering a business loan at the lowest rates. It will automatically bring down your worries regarding whether you have found the best loan offer or not.
Of course, other factors matter too when it comes to the feasibility of a business loan. However, choosing the lowest interest rate keeps your worries regarding the affordability of the advance off the table, so you can make your borrowing decision clearly.
Apply with all your documented income proofs
Your business’s financial status can determine to a large extent whether you will be able to secure the advance at competitive rates or not. And you can state your financial stability in the best possible way if you have all the documents related to business finances handy. Hence, try to keep all your business’s income proofs in one place and produce them to the lender during the application process. If your business sees ample influx of money, it can easily indicate that you are a financially stable borrower and improve your chances of securing better rates.
Keep the business’s financial statements organised and audited
To enhance the fact that you are financiallystable, you should keep your business’s periodic financial statements organised. Primarily, these statements include the balance sheet, the profit and loss statement, and the income and expenditure statement. In addition, you can get them audited by a chartered accountant so that its verification is doubly assured. Doing so can help the lender easily gauge your business’s financial standing for the necessary lending decision.
Take steps for credit score improvement
Your business’s and your personal credit scores are among the first things that a lender will assess while going through the loan application. It will offer them an in-depth insight into your past credit behaviour. As business loans are unsecured advances, a minimum credit score of 700 is usually mandatory.
The higher your score, the better are your chances of receiving loan approval with favourable terms, as it means you have a high creditworthiness and low risk of repayment delay or default. It is thus ideal that you take the necessary steps to improve the scores over time, so you can negotiate with the lender for affordable rates.
Choose between fixed and floating rate system
The final business loan interest rate levied on your advance is also a product of the type of rate applied to it. Which means, you can choose between the fixed and floating rate based on your convenience while availing the advance. Note that fixed rates are often higher than floating rates and are applied at the same rate throughout the tenure.
On the other hand, the floating rate system allows you to take the benefit of reducing rates in the market, which are adjusted by the lender too from time to time. However, a floating rate means it can go up sharply too. So, weigh the pros and cons carefully before making a choice.
Apply for a smaller loan amount than your maximum eligibility
Based on how well you fulfil the eligibility requirements, you will be eligible for a maximum loan amount that you can apply for and avail. However, when seeking a business loan at the best lending rate, it is wise to forego your maximum loan eligibility and apply for an amount lower than it.
This will automatically push up your repayment capacity based on your income and financial standing and allow you to negotiate for a better rate of interest that keeps repayments affordable. You can use a business loan eligibility calculator to assess your maximum loan eligibility and decide on the loan amount to borrow accordingly.
Apart from these tips, you can also watch out for loan offers during festive seasons that can help you get the lowest business loan interest rates. Apply for a loan with all the necessary documents to ensure that your application goes though the assessment process with minimum hassle and receives approval quickly.