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Business banking: Choosing the right business loan
The market for business loans is a rather odd one. On the one hand, you have banks massively advertising cheap and easy loans for any business. On the other hand, you have hundreds of businesses desperate to get any kind of loan from any bank, but not finding an acceptable arrangement. So it rather looks like banks are in fact in a strong position when negotiating business loan terms with business owners. However, business owners can somehow turn the tables when they have detailed information about what banks may ask for, and what terms they can negotiate.
Banks - and what they will ask for
Good news for businesses looking to secure a business loan is, there are more banks than they can think of which can provide these loans. Identifying the right bank, and learning what banks may ask for is the first step in getting the right loan.
There are more banks than you can think of
Well-known high-street banks are now no longer the only option for small and medium enterprises in search of a loan. In fact, many old banks have pulled out of SME-financing altogether. However, this means that new alternatives have appeared on the market, sometimes with just an online presence, sometimes specialising in very specific loan products. There are more financial institutions to choose from, and these institutions are trying to find their place on the market: all this is good news for businesses.
What banks will usually ask for
When issuing business loans, banks will only be concerned with one thing: securing as much protection for their investment as possible. All securities are not equal:
- property is by far the most appreciated one;
- other assets like fleets of car can be considered;
- if the customer has investments in several companies, cross-collateralisation can be a solution;
- if no assets can be found, cash flow lending can still be obtained, but with very high rates.
Business loans terms - and what businesses can negotiate
Carefully going through business loan terms is essential - and it gives businesses always more opportunities to negotiate the loan. A few tips come in handy.
Business loan terms
Every single line of terms can be used as a foundation for negotiation:
- never trust the advertised interest rate - it’s not the headline deal which will best suit the needs of your business anyway;
- amounts and conditions of repayments are the most obvious terms open for negotiation. Overdrafts are a nice addition to loans as they can be used as back-up when amounts are huge, and investments take time to bring returns;
- evaluating the assets and listing them is key to get better rates - assets should be properly leveraged, including all issued invoices.
Other key tips
Before starting any negotiation over loans, essential things should be kept in mind:
- you just have to be honest with the lenders - they will learn more about your business than you can imagine anyway, and if they find out that you have lied to them, you’ll be in a very difficult position;
- there are specialists giving valuable advice about how to find a business loan - they can be worth a phone call, especially at crucial moments in the negotiation.