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Business Loan Rate - How to Secure a Good Business Loan Rate

credit history cash flow types of collateral loan terms make your case types of business loans

Thousands of entrepreneurs have received help with turning their ideas into reality from strong financial capital. Some were able to start with personal savings, while many others depended on a loan. The expense of running a business is never ending; you have to pay rent, employees, and purchase needed supplies. Falling behind either of these essentials can threaten your business’ success. There is a range of financing options available for business owners. The key is to look for the best business loan rate. You want to comfortably manage the monthly payments, and keep your business afloat. The loan rate will depend on your credit history, cash flow, collateral, loan term, and length of business.

Credit History

As mentioned, personal savings is how many business owners begin to finance their business. Pull a copy of your credit report and score before you apply for a loan. A credit score above 700 will help you secure a good business loan rate. This score is a three digit evaluation of your credit payment history, and is used by a prospective lender to determine whether you will pay back the loan. Prepare to explain any past credit issues that might raise a red flag.

Cash Flow

The cash flow statement represents your sources of income and expenses. Common expense items for a start-up or existing business include:

• Supplies and inventory purchases
• Payroll
• Office lease payments
• Sales receipts

Always prepare for the unexpected. The lag time between making a sale and when payments are collected can squeeze profit outlook. Prioritize your options, and look for ways to reduce expenditures. Do not pay the full cash price for an item if you can rent or lease it at a reduced cost.

Types of Collateral

There are certain types of collateral that lenders look for before offering a low business loan rate, and determining how much to lend. Equity in your home, inventory of business equipment, and the amount of accounts receivable are critical factors.

Loan Terms

The number of years you have been in business demonstrates a track record for making money — and more importantly to the lender – whether or not you can repay the loan. Some financial institutions require a three year minimum. The size of your company and the amount you need to borrow also affect the type of business loan rate and terms for which you qualify.

Make Your Case

When you meet with the lender, have your financial statements, tax returns, and a business plan that includes a budget and growth projections. These represent the health of your company to the lender. Also, be prepared to answer questions, highlighting your business’ financial performance and why you should receive the loan at a good rate. Articulate why you need the money to grow your business, and make the case that the lender’s investment in your business equals profits for their company.

Types of Business Loans

There are different types of loans which determine the type of business loan rate you will receive.
• Unsecured – risky, usually depend on high loan rates that are fixed or variable
• Secured – require assets, usually low rates
• Commercial real estate – income producing properties; can be short-term or long-term
• Secured lines of credit – a flexible form of capital to buy equipment or fund special projects
• Unsecured lines of credit – receive financing without collateral

What’s Next?

Securing a good business loan rate is only the first step. Now, you have to maintain a positive relationship with the lender. Make sure you have a clear understanding of the requirements, i.e. providing periodical financial statements to the lender. Stick to your payment agreement. Contact the lender in advance if you foresee a problem. Call even if things are good to keep the lines of communication open.

Money is an important factor for your business, and you want to be in the best position for securing a good business loan rate when needed. However, industry knowledge, experience and a business plan can also determine the success or failure of your business. This will enable you to make targeted and wise investments for business growth.

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