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CEO & Founder of National Business Capital, the leading FinTech marketplace offering streamlined small business loans.
The economic landscape continues to be challenging for businesses due to higher rates and less accessibility at banks. These conditions may lead some business owners to conclude that now isn’t the right time to take out a business loan.
It’s normal to be cautious when making big decisions, especially when it involves borrowing large sums of money. But just like there can be consequences for to acting too hastily, there can be a cost to waiting too long to act on a business opportunity.
If you’ve been putting off applying for financing out of concern for high interest rates, this may not be the only criteria to consider.
The Cost Of Missed Business Opportunities
A business opportunity lets you take advantage of a favorable market condition. This opportunity could be to expand your current operations, offer a new product or enter a new industry.
Successful business leaders recognize these opportunities before everyone else and take steps to capitalize on them. Waiting too long to act on a business opportunity could cause you to miss out on it altogether, and there’s no guarantee when the next one will come around.
It’s hard to measure the impact of a missed opportunity, but you know it exists. You should always consider the opportunity cost when making a financial decision for your business.
5 Ways Businesses Can Lower Their Rates
When you’re taking out a business loan, the most important thing to consider is the opportunity you’re investing in. If a loan can help your business grow, then the interest rate may not be the only thing you want to focus on.
However, your interest rate will affect how much you pay over the life of the loan, so you shouldn’t ignore it completely. Listed below are five steps you can take to try to secure a lower rate.
Improve Your Credit Score
Your personal credit score will affect the loan terms you receive. So if your interest rate is higher than you’d like, you may want to take steps to improve your credit score.
Your payment history accounts for 35% of your FICO score, so paying your bills on time is the easiest way to improve your credit. Your credit utilization rate, which is the amount of available credit you currently use, accounts for 30% of your score. So, paying down any outstanding debt will also improve your FICO score.
Choose Shorter Loan Terms
One of the easiest ways to lower your interest rate is by choosing a shorter loan term. Shorter loan terms are less risky for the lender, which usually results in a lower interest rate. However, this does mean your monthly payments will be higher, so you’ll want to ensure you have the cash flow available to cover them.
Improve Your Cash Flow
Banks and lenders will want to see that you have sufficient cash flow to make your loan payment each month. Qualifying for the rates and terms you want will be more challenging if your cash flow is weak.
You can improve your cash flow by offering discounts to your current clients to incentivize them to pay their invoices faster. Alternatively, you can negotiate with your current vendors to see if they’ll give you longer payment terms.
Put Down Collateral
Offering some type of collateral on the loan will make you less of a lending risk, so lenders will usually offer lower interest rates. For example, if you’re taking out a loan to pay for equipment, you can use the equipment to secure the loan. If you don’t repay your loan, the lender can seize your collateral and sell it to recover the loan amount.
When it comes to business loans, the interest rates can vary significantly from lender to lender. That’s why one of the best ways to save is by shopping around and getting quotes from different lenders. It’s a good idea to compare offers from at least three different lenders.
You can do this by picking three different lenders and applying with each one directly. Of course, this can be time-consuming, so another option is to use a lending marketplace. With this strategy, you’ll apply once and receive quotes from multiple lenders in one location.
Focus On Your Business, Not The Economy
The time to grow your business is often sooner rather than later. You may not want to waste time waiting for market conditions to improve and interest rates to go back down. If your opportunity makes sense for the cost of capital, then the interest rate doesn’t matter as much.
If you see a viable business opportunity, taking out a small-business loan can be a good way to take advantage of it. If concern over interest rates is the only thing holding you back, you may want to reconsider waiting to get a business loan.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.