When looking at a new business loan, there are more components than just the interest rate that affect your monthly costs and installments. Because of the structure of the financial components of the business loan, there are several buttons you can push to optimize credit for your business. We mention some examples in this blog.
- Interest component choices: Interest component choices affect the amount of interest you pay. If you want to know where you stand, you can choose an interest rate fix. Then you won’t be surprised by large fluctuations in interest rates during that period. But for that security, you pay a premium. However, you can also make a combination, for example, take out part of your loan at a 5-year fixed rate, part at the 3-year rate and part variable.
- Preventing structural ‘being in the red’: Does your company have a revolving credit that is used continuously? Then you pay a high risk premium. Your company may need this financial space structurally rather than incidentally. Converting a revolving credit into a business credit with a maturity may then be of interest.
- Lowering your risk profile: By lowering the risk of the loan to the bank, you can lower interest costs. Often the situation has changed from the previous credit application. For example, your business is past the start-up phase, you have higher sales and you are making more profit. Or you may need less credit within your financing as a whole. You may also be able to offer more collateral and guarantees, such as by pledging your stock or assets in the holding company. All of these things will change your risk profile, which can translate into lower interest rates.
- Adjust repayment schedule: As mentioned earlier, it is also possible to look at the repayment component to make a credit fit the new situation. By extending the term, for example, you spread out a straight-line repayment over a longer period. Of course, you will then pay interest over a longer period of time.
- Financial restructuring: Finally, it is possible to look at the financing of the company as a whole. For example, it may be possible to take out a mortgage on a business property with a lower interest rate than a business loan. Or, financial constructions may be helpful to increase the company’s liquidity, such as a sale & lease back construction. Alternative financing or increasing equity can also be considered. So sometimes you can look wider and look for alternatives.
Want to know what options are available to make your business loan better suited to your situation? If so, please contact us without obligation.
How do I get what funding?
Funding and entrepreneurship are inextricably linked. After all, realizing your entrepreneurial ambitions often requires capital. Consider, for example, investments in growth, innovation, capital-intensive production goods or the acquisition of a competitor.
In this e-book, we discuss finding the right funding for your plans. And with the current interest rate developments and changing role of the bank, among other things, there are more and more aspects involved. Fortunately, there are also more and more opportunities.
