Whether to expand the existing venture, upgrade plant & machinery or to improve capacity, businesses usually require financing in high value. Even if funds are required for daily operational needs, they are still often a notch higher than personal retail credit. Thus, interest is one of the aspects that bring a remarkable opportunity for savings.
Whether it is availing a low interest business loan or taking important financial decisions on interest reduction, adopting necessary measures can go a long way in helping a company save its finances from draining. Businesses thus need to look out for various strategies that can help them save on the total interest payment over the years. We bring you some of the top strategies you can adopt in your business loan availing and management pursuit to save on interest payment.
Smart Ways to Keep Business Loan Interest Payout in Check
- Compare lenders to avail the lowest rate
One of the foremost and widely suggested ways is to choose your lender carefully. You must make sure to compare various lenders available in the market to secure a low interest business loan that keeps financing the most affordable. Go for an elaborate market research and narrow down your search to the few best ones for comparison.
You can use an EMI calculator to compute the EMIs and interest payable for optimum comparison. Also, consider other applicable charges to minimise your total repayment liability.
- Keep your business profitability high
Interest rate levied on a loan is closely related to the risk of repayment default associated with a borrower. To minimise such risks, a business owner can plan ahead to keep the venture’s profitability high. A fairly profitable venture with financial stability stands a better chance to secure reduced business loan interest rate.
- Choose the type of interest calculation carefully
Lenders use two ways to calculate the interest liability on a loan, i.e., fixed and floating rate calculation. While the former remains the same throughout a tenure, the latter changes with a change in the market trend. You must thus analyse trend forecasts to choose a suitable interest type. For the latter, also consider the benchmarking system followed by the lender, where RLLR or Repo Linked Lending Rate system has been known to provide lower rates than any other previous benchmarking system.
- Apply with a high credit score
Both individual and business credit score affect the interest levy by lenders. It is thus crucial that you keep your financial discipline intact through and through, so as to keep your credit score high at all times. Methods can include making timely and full payment of dues and instalments, maintaining balanced credit mix, etc.
A high score reduces the risk associated with you as borrower, and allows you to negotiate for a low interest business loan in your favour.
- Leverage your relationship with lender for interest rate negotiation
You can also leverage an existing relationship with your lender to negotiate for reduced rates. It can be done based on past repayment records with nil dues, delay or default.
- Make prepayments
Prepaying your business loan with lump sum funds before the tenure ends is one of the smartest ways to reduce your total interest liability. Part-prepayment can also reduce the EMIs payable, bringing down your monthly expenses.
- Increase the EMIs payable
Another way to cut down on business loan interest payment is to increase your EMI payments with sufficient income backing. Doing so shall help repay the loan early and help save on additional interest liability.
You can also look for seasonal offers when applying for the advance to secure a low interest business loan. Efficient business loan management can be a crucial step towards improving or establishing financial stability and/or discipline for your venture.