Business

How To Make Sure You Get The Best Possible Deal For Your Business Borrowing Despite Rising Interest Rates?

By Ryan Bradman | September 9, 2023

Table of Contents

One of the topics that has dominated the headlines throughout 2023 is inflation and the rapidly rising interest rate. The Bank Of England has been raising the base rate of interest for many months now, and this affects every form of lending, from mortgages to business loans and beyond.

Forecasts show that the interest rate is likely to remain high for some time to come, so business leaders need to be prepared for economic issues to continue. That means finding ways to ride the storm and ensure that you always have enough cash flowing through your business to pay important bills.

During times of economic hardship, many companies turn to business financing products, like loans and other lines of credit. However, the interest rate is so high right now it can be hard to get the right deal on borrowing, and businesses might find themselves paying more than they bargained for.

In such a changeable market, you might also find yourself wondering whether to wait for better deal options or take what you can now, as the rates could rise again in a few months. To help business leaders like you to find the right business loan option at the right price, despite the challenges we face right now, we’ve listed some of the key factors you need to consider.

How To Make Sure You Get The Best Possible Deal For Your Business Borrowing Despite Rising Interest Rates?

Review Your Current Financial Situation

Before seeking new financing, thoroughly evaluate your current financial position. Understand your cash flow, profitability, and debt levels. Lenders will scrutinise these factors when considering your application, so it’s important that you have this information to hand.

Also, by reviewing your financial situation, you might be able to find ways to cut back on spending, which means you might not need to borrow money or can take out a smaller loan than you previously thought you required.

Consider Refinancing Existing Debts

For any business with existing loans or credit facilities, you need to review the terms and conditions to see if there’s a way to make the most of these loans. Determine if it’s possible to refinance at more favourable rates, especially if you’ve paid off the majority of your loan’s balance. This approach could help you save money on your existing borrowing and mean that you don’t need to raise as much extra capital as required previously. That means you can keep your business on track with less external funding.

Learn The Art Of Negotiation

As uncomfortable as it might seem, negotiation is key to getting the best deal. Even in an economy with rapidly rising interest rates, you can still secure competitive rates and terms if you’re willing to take the time to negotiate. Highlight your creditworthiness and the strength of your business when negotiating with lenders, and use your research of the market to make sure that you’re informed and able to get the best deal possible.

Before you enter into negotiations, determine what aspects of the loan terms are most important to your business. Is it the interest rate, repayment schedule, loan amount, or flexibility in using the funds? Knowing your priorities will guide your negotiation strategy. With a little perseverance, both you and the lender should feel that you’ve reached a mutually beneficial agreement. Being well-prepared, knowledgeable about your business’s financials, and clear about your priorities will help you negotiate the best possible terms for your business financing product.

Look Into Every Option

Explore various financing options other than traditional bank loans, such as asset financing, merchant cash advances, and commercial mortgages. Each option has its own pros and cons, and some may be more suitable for your needs. Once you know what type of loan would work best for your business, you need to find the right financial provider and product.

Reviewing each provider’s offering and terms individually can be incredibly time-consuming and stressful, but with the help of brokers like Capalona, you can explore a wide range of business loans from a variety of providers. You can then find the right option for your company, without spending hours researching all the products on the market.

Explore A Range Of Rate Options

Most business loans come in two different types: fixed or variable rates. Understanding the difference between fixed and variable-rate business loans can help you to work out the right one for you. Then, you can review your business’s financial situation and evaluate whether it’s more beneficial to opt for fixed-rate loans that offer stability in interest payments, or variable-rate loans that may initially have lower rates but can fluctuate with market conditions.

Think about the length of time the loan will run for, as this can have a major effect on the best rate option you should choose. The key is working out how much of a risk you’re willing to take. You’re essentially gambling on the notion that interest rates will fall in the future if you choose a variable-rate credit option. With a fixed-rate loan, you’re betting on the idea that rates will rise above the rate you fixed your loan at. Whichever way you roll the dice, you need to be confident that if the decision is wrong, you’re still able to pay off the loan and keep your business going.

Make The Most Of Existing Assets And Guarantees

Offering collateral or personal guarantees can improve your chances of securing better loan terms, as it reduces the lender’s risk. As such, you need to be prepared to provide assets or guarantees if needed for some types of loans. While you could get a better rate with a guarantor or by using your assets as security, you also run additional risks.

If you don’t repay the loan on time, you might have your assets repossessed, or your guarantor could find themselves with the responsibility for your loan. So, you need to weigh up the pros and cons of each type of guarantee before you commit to a loan that could have major consequences on your business’s future.

Prepare For Due Diligence

Every lender has to carry out due diligence checks on potential clients to ensure that they comply with relevant financial legislation, like anti-money laundering laws. Most lenders will conduct thorough due diligence on your business and possibly your personal finances, depending on your business set-up. That means you need to prepare to provide requested documents promptly and transparently.

The lender might ask for anything, including business plans, balance sheets, personal financial statements and credit reports. Being thoroughly prepared for due diligence not only helps you present a strong case to lenders but also demonstrates your professionalism and commitment to responsible financial management. It can significantly enhance your chances of securing the loan you need for your small business.

Stay On Top Of Communication From Your Potential Lender

During the due diligence process and everywhere in between, you need to make sure that you communicate effectively with your potential business loan provider. Be prepared to answer questions and provide additional information as requested by the lender during the due diligence process, as this will speed up the process and ensure that they have everything they need when they need it.

Open and transparent communication can also help you to build trust and demonstrate your commitment to the loan application. It can be a nerve-wracking experience dealing with a loan application, but the results will be well worth the wait and hard work.

Seek Professional Advice

For small businesses that are in severe financial difficulties, even the advice in this article might not be enough. Many businesses in this current economy are feeling the pinch, but if you’ve seriously overextended, then you might not be able to dig yourself out of the hole on your own.

If you’re facing a major issue, then you should seek advice from financial advisors, accountants, or business consultants who can provide valuable insights into your borrowing options and strategies. Having a financial advisor by your side can give you confidence in your borrowing decisions. You can focus on running your business, knowing that you have a professional guiding your financial strategies and ensuring that you get out of the situation you’re in currently and don’t fall into a similar trap moving forward.

Work To Improve Your Credit Score

It takes time, but if you’ve got a few months before you need small business financing, then a higher credit score can help you qualify for lower interest rates. Work on improving your personal and business credit scores by paying bills on time, reducing outstanding debt, and resolving any credit issues. This will then mean that when you do go to take out a business loan, you’ll be able to get a better rate than you might have done before, which is particularly valuable right now, as the base rate looks set to keep rising and won’t start dropping for a few years. You can also apply for a loan with less interest percentage if you have good credit score.

While it may appear intimidating, meticulous preparation and effective negotiation strategies can empower you to obtain the most favourable terms for your business borrowing, even in a demanding economic landscape. Although it may require time and effort, the eventual outcome will be discovering the ideal financial solution to facilitate your business’s growth and extend its reach over the years to come.