Thanks to a few tips and tricks, it is possible to reduce your overall business loan repayment liability. One of the best ways is to seek reduction of interest rate levied at the onset. Now, while this is possible, businesses that have already availed the advance and are paying interest at the determined rate can also reduce the total interest payable through a few smart ways. Let’s check them out one by one.
Compare Interest Rates from Different Lending Institutions
One of the first steps to seeking interest rate reduction is to make a suitable comparison of available offers from lending institutions. It should not only help you gauge the standard business loan interest rate in the market but also help identify the lender offering the lowest rates on the advance. Accordingly, you can proceed to apply with the lender concerned after meeting all eligibility requirements to ensure that you carry a suitable financial standing to secure such loan offer.
Document All Income Sources with Application
Your income and earning stability are important indicators of the lending risk a financial institution would undertake when extending funding. It is thus important that you let it be known to the lender about all your income sources, which accordingly must be documented when applying for the advance. Doing so can be even more critical in the case of small business loans that do not require any security as the risk of lending is all the more amplified.
Choose a Loan Amount Lower than Your Maximum Eligibility
When assessing your maximum loan amount eligibility, the estimation of your repayment capacity is stretched to the maximum based on your income, age, and such factors. So, when selecting a lower loan amount than your maximum eligibility, you improve your repayment capacity for the advance as the available funds automatically widen to accommodate higher repayments. It is thus always suggested to not max out your loan eligibility and choose a lower amount. It not only helps fetch reduced rates but also allows borrowers to secure other favourable terms on the advance.
Apply with a High Credit Score
Business loans are available as both unsecured and secured advances. While credit score above 700 is a must when availing an unsecured business loan, its importance bears significance for secured loans as well. A high credit score and a good credit history means a higher creditworthiness of the borrower, allowing the lender to approve reduced interest rates on loans applied for.
Choose Cautiously Between Fixed and Floating Interest Rate
Interest on business loans, like many other advances, is charged wither through the fixed rate or the floating rate system. In the case of the former, the rate remains the same as determined at the onset. For the latter, the interest rate changes based on variations in market trends. Fixed rates are, however, set a notch higher than floating rates, which makes them a tad costlier. You can decide between the two options based on your assessment of past and future market trend predictions to maximise your interest benefits.
Look for Seasonal or Festive Offers
Festive or seasonal offers on business loans often come with a chance to secure funding at reduced interest than the standard rates applicable. It is because in these times financial institutions aim to increase borrower count and increase their lending capacities. You may look out for affordable loan options during these offers as well.
Repay Existing Debts Before Applying
Repayment of existing debts means a borrower is not tied down to meeting fixed monthly liabilities on the go. It thus frees up the income to accommodate a new loan EMI, making it possible to avail funding. Such improved repayment capacity also bodes well with lenders, allowing them to provide financing at reduced business loan interest rates.
Choose a Short Repayment Tenure
A short tenure means the borrowers will repay the loan amount earlier than expected. As it will reduce the overall time involved in lending, it checks the accrual of total interest payable as well. You can use financial tools like EMI and eligibility calculators to best decide on the tenure that first your financing capacity.
Opt to Prepay Your Business Loan
Prepayment of a loan means repaying a part of or in full the loan amount availed before its scheduled repayment date. Two common prepayment options for business loans are part-prepayment and foreclosure facilities that one can choose between to repay the loan and save on unnecessary interest payment.
Other smart ways for business loan interest reduction include going for a balance transfer of business loan and increasing the amount of EMIs payable. You must make sure to provide all required documents and apply online for hassle-free processing of the advance.
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