Though small businesses can hardly survive without a loan from a bank or any other financial institution, savvy business owners are always on the lookout to reduce the interest rates on those business loans. After all, it can hardly be denied that depending on the amount being borrowed, the type of loan, the status of the business, etc., loan payment can spiral out of control before you know it, consequently affecting the smooth functioning of the company. Bajaj Finserv is one of those few NBFCs that offer MSME and SME loans for small and medium businesses. The applicants can not only enjoy low business loan interest rate, but also fast processing within 24 hours and minimal documentation. The maximum loan amount that one can avail for the growth and expansion of business is Rs. 30 lakhs.
- 1 The following are some tips which can help business owners to reduce their interest rate on their small business loans
The following are some tips which can help business owners to reduce their interest rate on their small business loans
Prepare a sound business plan
A well-laid-out and comprehensive business plan will not only project the estimated revenues and profits, but will also have the past earning and expected growth. With such a plan, you can hold the maximum convincing power in front of a lender. The bottom-line is, the lender needs be sure of the fact that the borrower will be able to repay the loan without defaulting.
Build a good credit score
Financial institutions typically need applicants to have a credit score of at least 750 to avail business loans. The score, in a way, vouches for the credibility of the borrower and acts as a security since these loans are collateral-free. One of the major ways to attain such credit score is by availing a credit card. However, make sure that as a cardholder, you pay the bills on time and keep the credit utilization within 30% of the limit. Borrowers with a high credit score stand a fair chance of negotiating or even lowering the rate of interest on their small business loan. In short, it gives a boost to your business loan eligibility.
Make an easy balance transfer
Easy balance transfer facility is offered by numerous financial institutions to their customers. A borrower can transfer the outstanding loan amount to another lender offering a lower interest rate. In such a situation, it can be quite beneficial to make use of the easy balance transfer facility. However, the lender in question may charge a fee for providing this feature. Simultaneously, the customer may get a top-up loan from the new financial institution.
A substantial vintage
If you are availing small business financing from an NBFC, make sure your company has a vintage of at least 3 years to sanction business loans. Such an enterprise should have sound accounts receivable and profit. Thus, it will have the capacity to repay the loan in a timely manner without defaulting. The older a business is, the easier it is to receive advances. Moreover, a business with a substantial vintage might get to negotiate the interest rate on the business loan.
Part-prepayment will not reduce the rate of interest, but it will either lower the EMIs or the loan tenure. A borrower can repay a substantial part of the loan amount when he/she has ample funds. Thus, by taking the course of part-prepayment, the borrower can either pay reduced EMIs or make the loan tenure shorter. However, find out if your lender is charging any additional fee for providing this facility.
Opt for a flexi-loan facility
Leading NBFCs observe the Flexi-loan facility, whereby borrowers can enjoy the liberty to withdraw only the required amount from the predetermined loan amount and pay interest only on that utilized amount. This will save the borrower from paying interest on the entire loan amount. What’s more, if you repay the amount within 24 hours, you will be exempted from paying any interest. Interests will be charged only on the withdrawn amount on a daily basis. Customers can also opt to pay the interest amount as EMIs and pay the principal at the end of the loan tenure.
Additionally, borrowing during a time when the economy is down is when there is high uncertainty (about factors such as inflation and a volatile interest rate environment) can be a good strategy for achieving a favourable rate – you can opt for a time when a bank may be especially motivated to make a deal or give you the best rate possible. Finally, seeking a loan with government backing can also help you in availing the most competitive interest rate possible.