Tips for Negotiating with the Bank

Many small business owners are receiving an unpleasant surprise when seeking out loans – banks are charging higher interests rates, despite great credit. Here are a few ways to make sure you don’t receive the same shock when you go in to discuss the terms of your next business loan.

With the economy improving, some businesses are finally deciding to spend money. For many small businesses, this means taking out a loan to hire new employees, move into larger spaces, or expand inventory. Many banks, however, are still wary and may try to saddle you with a higher rate than you’re already receiving on current loans.

Just like you, the banks are a business – they want to make money. Your lender is trying to find companies that are low risk, and the lower the risk, the lower the rate. Here are a few tips for making your business seem less risky and more appealing.

Know what you want going into the negotiation

Make sure that you know exactly what you need going into the negotiation process. The lender will see that you are prepared, which is always a good thing. It’s also helpful to know what you alternatives are. If you know where else to get the funds, you won’t be as pressured to jump on any unfavorable terms the bank is offering.

You will make compromises

It’s probably a good idea to make a mental note of the things you know you can do without before going into the negotiations. Don’t worry – they’ll have to make compromises, too. A lot of this goes back to knowing your business very well. If the bank wants a personal guarantee or to manage your personal accounts, you need to know if that is possible. It could be the difference between getting the loan with lower pricing and disaster.

Be patient, be smart, be appealing

Once you’ve actually talked to a loan officer, give them the time they need to consider everything. You should also think about holding a few things back from negotiations, i.e., don’t divulge all the compromises you’d be willing to make. When the loan officer is ready to talk, it might help to mention that you are thinking about selling your business in a couple of years and would like some help. Don’t worry – you don’t really need to sell it, but the potentially lucrative banking referral may get you a lower rate from the loan officer. You’re always a better applicant if the bank knows you’ll be bringing them more business in the future.

Don’t be afraid to walk away

Settling for something you know is feasible can hurt your business more than not getting the loan. Walk away. Take some time to look for another funding source, if you haven’t already. You can always come back if you think it’s your only option.