Top 9 Tips to Negotiate a Business Loan in India

Business loans are provided to business owners who satisfy the lender’s eligibility criteria. If you are a successful business owner with an excellent credit score & history, and a very good record of revenue generation & profitability for the past 2 years, you may consider using the below tips to know how you can negotiate favorable terms for your business loan. 

1. Business Plan and Risk Analysis

Prepare a detailed business plan. This plan should outline the goal of your business, how you want to run your business, and the purpose of your loan. Also, identify internal and external risks associated with your business that you may feel affect your lender. Prepare a plan with recommendations to mitigate the risk so the lender understands the level of risk. 

2. Prepare a Negotiation Plan

Make a point of highlighting the one thing that sets your company apart from the competitors. The lender’s objective is to borrow your financial position, the lender may attempt to influence future strategies. Have a strategy to avoid lenders taking over your future plan’s decisions. Determine which components of the financial arrangement are extremely crucial to you, which are non-negotiable, and which are easily renegotiable. Being prepared in advance with a strategy and knowing which conditions are the most acceptable for your financial need will help you in taking good decisions and negotiations. 

3. Choose the Right Loan Product

There are different types of business loans, and each serves a different type of need. If you are looking for a line of credit against which you can withdraw amounts to serve your working capital needs you can go for loan products like overdraft facilities, loan against securities, bill discounting, and so on. If you are looking for an unsecured loan that can meet your short-term goals such as working capital, you can go for an unsecured business loan which can be repaid within upto 48 months*. SMFG India Credit offers such loans up to INR 75 Lakhs* depending on the borrower’s eligibility. If you need a large amount for your long-term plans, you can go for a secured business loan against property.

Must Read: Business Finance - Meaning, Importance, Types & Sources

4. Pay off Existing Debts

It is best to ensure that your current monthly EMIs do not exceed 30% of your income. If you have existing debts, pay them off to the extent possible. This will allow you to negotiate better terms with the lender when you apply for a business loan.

5. Negotiate the Interest Rate Payable

The interest rate on a loan is expressed as a percentage. It has a significant influence on your monthly expenses. Negotiating a reduced interest rate with your creditor can help you reduce your total debt and pay it off faster. CIBIL score, annual turnover and profits will impact your interest rate. You can use our business loan eligibility calculator to get an estimate of the maximum loan amount you can borrow. Requesting a loan for an amount that is lower than this figure could help you get low business loan interest rates. 

6. Negotiate the Payment Schedule

Request improved payment terms from your lender so that you can invest your money in ways that will help you grow your business. Carefully understand the lender’s repayment terms and conditions, and repayment penalties. Present the comparison between other lenders which will help you in negotiating the EMI.

To protect themselves, most lenders require collateral, which they can subsequently lease, manage, or liquidate in the event of a company/business failure. Negotiate with the lender in such cases and attempt to keep your personal assets as collateral for the loan to a minimum. Consider taking out a loan from a bank or non-financial institution with which you already have a relationship. As a result, you should be able to easily negotiate the interest rate with the lender. Before negotiating an affordable and suitable business loan, look at your company through the lender’s perspective. 

7. Understand the Loan Charges

Lenders often charge additional amounts such as documentation fees, processing fees, stamp duty charges etc, depending on the type of business loan you are taking. Understand each of these charges and ensure that you get the best possible deal. If you have a highly profitable business with an excellent credit score and repayment capacity, and if you already have a very good repayment history with the lender, you could leverage these factors to negotiate the terms of your new loan.

Must Read: 6 Methods to Repay Your Business Loan Faster

8. Choose the Right Lender

One way to negotiate a business advance is to select the lenders to approach cautiously.  It is advisable to find one that gives credits in your specific industry. Many lenders are known for providing credits to businesses within a specific number of industries. 

Another tip is to see all the important wording prior to moving forward. Read the loan agreement and make sure you are aware of the various terms and conditions. Apart from basic terms such as the amount, interest rate and tenure, other e terms you should be comfortable with incorporate inflatable installment, default, monetary pledges, advance-to-esteem proportion, and individual assurance.

9. Keeping Collateral in Mind

A lender’s trust in offering your business credit will be founded on its investigation of your capacity to reimburse it. Lenders additionally safeguard themselves by requesting collateral such as immovable assets or financial assets. In case of non-payment or default, the lender can then repossess pledged assets and use them to recover their dues.

*T&C Apply