Need Business Loan? Negotiate for Business Loans

If you need a business loan to start your small business venture, then you need to take into account different factors like the rate of interest and the repayment terms. Borrowing money for business purposes can be an expensive proposition – so you need to consider a few things before doing so.

Get Everything in Writing

When negotiating with your bank, or any other financial institution, it is a good idea to get all the proposals and interest rates in writing. That way, there will not be any misunderstandings later on if you have to deal with another officer in the same company.

Check Different Types of Loans Available

You could get a loan from your friends and relatives, which might attract less interest and no collateral, but this could become tricky socially, especially if you are unable to pay back the loan.

Banks are willing to give business loans, provided you give them collateral and submit certain financial documents. You could approach the SBA (Small Business Administration –, which might solve your collateral problem.

Private finance companies can help you out if you cannot get a loan from a bank, but their interest rates can be very high.

Venture capitalists will invest in your business only if they see the potential to earn a good return on investment; and they could even take over your business if a conflict arises that cannot be resolved.

The golden rule is – be wary of obtaining any type of financing that reduces or eliminates your control of the business.

Check Interest Rates and Hidden Fees

When you’re shopping for a loan, write down interest rates and compare them with other modes of financing. Banks normally charge between 6% and 9%, while venture capitalists would normally want 25% to 40% of your share of the business, and might also want to be co-owners.

Finance companies might ask for anywhere from 14% to 30% interest on the loan.

There might also be other charges such as processing fees or fees by any other name, which the lender might try to incorporate into the loan. So read the loan documents very carefully.

Beware of Restrictive Penalties

All banks will have late payment penalties, but most will also have pre-payment penalties (i.e. there will be a penalty if you try to repay the entire loan before the due date).

The reason for this is that banks lose interest (read: money) if you pay the money back before the maturity date, so this penalty is used to discourage you from paying back the loan early, thus saving you money.

Always remember that when lending money, banks want to make money – whether or not it is at your expense.

Keep Your Documents Handy

Have your previous financial data, if any, ready, when applying for a business loan. Keep all the data precise and do not fudge any figures. Doing so could get you into legal trouble later.

Always keep extra copies ready, in case you have to submit them to different lenders.

Decide How Much You Actually Need

Calculate your rentals, the amount of inventory you plan to hold, your staff salaries and other expenses, and then decide on how much you actually require to run your business.

There is no point in taking out more money than you need and paying excess interest on it.

Hire a Good Attorney

Hire a good attorney or CPA (Certified Public Accountant) to help you decipher lenders’ terms and conditions. Their services might be expensive – but this is money well spent, especially since it will help you avoid getting into financial or legal wrangles later on.

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