Best 5 Ways to Negotiate Business Loan Terms in India
Business loans are an excellent way to establish and expand your business. It is a multi-purpose credit allotted to business owners with short or long-term needs. Today, you can get a business loan from numerous financial institutions, such as FlexiLoans, Kotak Mahindra Bank, Poonawalla, or Indifi.
Whether you get a FlexiLoans Business Loan or an Indifi Business Loan, an essential factor to consider is cost of borrowing. In business loans, the cost of borrowing depends on the loan terms. Negotiating to get the best rates is crucial at this stage, as it helps ensure that the business does not spend more than it needs to.
However, this is easier said than done, as negotiating successfully requires proper planning. Read on to learn five strategies to negotiate business loans and secure an excellent offer.
Prepare a Business Plan
The first step is to prepare your business plan. Making a plan allows you to dive deeper into the need for the loan and future prospects. Presenting all these details show that you have a clear and sound plan to utilise the funds.
Having a set plan may even help the lender trust in you, the business owner, and this can reduce the risk of lending to you. When the lender has the assurance that you have a low risk of default, you are more likely to receive affordable loan terms.
Moreover, conducting the analysis will help you arrive at the ideal loan amount for your needs. You can know the funding you need by researching your business’ future and the prevailing market trends.
Do keep in mind that the loan terms may vary based on the amount you borrow. As such, borrowing adequately helps you make a case for better terms.
Asses Risk and Profit Points
Lenders avoid giving loans to high-risk businesses. While negotiating, highlight all the revenue-generating strategies you have in place. This helps the lender understand your plan to manage the loan, and whether or not you can be trusted to repay on time. Be sure to present all internal and external market risks and how you aim to tackle them.
Doing this will allow you to showcase your business knowledge, financial management, and credit understanding. This will help boost the confidence lenders have in you, making you eligible for better loan terms.
In simple terms, the risk incurred is a key factor that lenders assess when considering your business loan application. Conversely, showing the profit areas and your plan to address potential business risks and vulnerabilities will move the negotiations in your favour.
Strategise for Lower Interest Rate
Interest rates are an essential loan term that you cannot overlook. It significantly influences your borrowing costs. Moreover, these rates vary for all business loans, whether it is a FlexiLoans Business Loan or Indifi Business Loan.
This makes it crucial to have a general strategy for a lower rate. Your interest rate depends on your loan tenure, CIBIL score, and overall eligibility. You can use online business loan eligibility calculators to know the loan amount you are eligible for, and apply accordingly.
Be sure to apply within the acceptable range, as this will give you the best chance of approval. You can also improve your CIBIL score and creditworthiness to make you a low-risk borrower, giving you negotiating power.
Evaluate Repayment Plan
The repayment plan is simply the tenure, and influences your approach to handling the loan. This plan is based on the interest rate, loan tenure and amount you avail. Lenders often offer different repayment plans, allowing you to choose one that best suits your business.
Some lenders offer plans where you can pay the interest first, increase the EMI amount gradually, or prepay after a few EMIs. Negotiating for a more flexible plan can help, as it allows for more efficient resource allocation.
Keep this in mind when drafting up the business plan or negotiating with the lender. How you manage working capital dictates whether or not you can tap into market opportunities. These help you grow and expand your business.
As such, having flexibility in your loan repayment plan allows you to redirect your revenue and resources towards growth, while steering clear of defaults.
To negotiate and get the best repayment plan, use an EMI calculator to know which plan is the best for you. Once done, approach the lender and highlight the pros of your business that can help you lock in the plan.
Look at the Prepayment Terms
Prepayment is an essential repayment strategy as it can help you save on interest. However, the prepayment comes at a cost, whether you avail of a FlexiLoans Business Loan, Indifi Business Loan, or a Bajaj Finserv Business Loan.
The amount levied under these charges depends on the outstanding loan amount you pay and the time you prepay it. These charges are generally mentioned in the prepayment terms, and negotiating beforehand can help you save money in the long run.
Many businesses prepay their loans when the business is witnessing a boom. Also, some lenders do not levy these charges, and those that do are often open for negotiation. You can negotiate these terms while finalising the loan deal, so that you are prepared for the future.
Applying for a business loan starts with smart market research. Research the profits and risks for your business. After that, you can move to the terms and terminologies related to your business loan.
It is better to clarify your loan details with your lender before signing the deal. Read and understand the documents, including the payment terms and charges. This way, you can ensure a smooth repayment experience without any unexpected penalties or charges.