Businesses routinely require business loans to get set up and to finance expansion. There is risk attached to any lending and it is crucial, therefore, to get the best possible deal on a business loan, especially during times of economic turbulence. The key to getting a good business loan is to establish strong connections with banks and to be prepared to shop around for the best rate.
Build on strong connections with your existing bank
Banks are more likely to lend to businesses they have an established connection with, as they are more likely to trust the business's ability to repay the loan if they have seen evidence of sound financial management. A good starting point, therefore, is to approach the lender that you bank with to see what they will offer.
Don't be afraid to shop around
Even if you have been with one bank for countless years, you are under no obligation to stay with them. If another lender offers a better loan deal, then that is going to help your business meet its objectives, so it is worth speaking to a few banks to identify the range of offers open to you.
Impress your lender with your business case
The first challenge that a business faces is to get a bank to agree to lend money, and the second challenge then is to get them to offer a loan at a low rate. Your prospects on both of these fronts will be greatly increased if you can clearly demonstrate an overwhelming case for why your loan is low-risk and how the money being borrowed will deliver a high return on investment. Some banks use a risk-based pricing strategy, reserving their lowest loan rates for lowest-risk borrowers, so being thorough and professional in how you pitch your loan application can be very important.
Maintain a good credit history
As with personal loans, the key to getting a good business loan is to have a good record of managing your existing bank accounts prudently. In particular, where loans or overdrafts have previously been granted, it is important to repay them on schedule without incurring bank charges for missed payments. When a small business seeks a business loan for the first time, it's worth bearing in mind that the personal credit history of the business owners will often be what lenders use to judge the associated risk in lending to their business.
Many business owners apply for loans or lines of credit without any thought to their own personal credit histories. They mistakenly believe the loans made to their businesses will have no impact on their personal credit and that they cannot be personally liable for the business loan.
It's possible to get an unsecured small business loan, but you'll need good credit, a well-written plan and the ability to sell yourself to the lender.