Many business owners are so happy just to secure financing that they fail to negotiate better terms and rates. Time is money and a low financing rate costs less than a high one, especially long-term, so consider all of your options for finding the best rate and most flexible terms.
Alternative Lending Programs
Small Business Administration (SBA) loans issued by banks and non-bank institutions—peer lending groups and community-based organizations, for example—often offer longer terms for repayment and preferred rates. SBA loans are relatively large loans with flexible terms, but clear documentation is needed. Working with a motivated and experienced banker who has small business expertise is best for securing favorable terms and rates.
Vendor financing can be an attractive, low-cost option for established businesses with strong suppliers and significant purchasing power. Vendor financing may provide flexible payment terms, discounts for early payment and financing options to free up working capital. Purchasing scale and vendor credit may limit the total impact on working capital, but it can be a low cost option for many companies.
Most lenders want the business owner to have some “skin in the game” by requiring equity to close the deal. While traditional bank loans require a 25 percent to 30 percent cash down payment, SBA guaranteed loans can have a down payment as low as 10 percent. The payment can take the form of existing cash, retained earnings, stock, real estate or any other substantive item of value agreed to by you and your bankers. Lenders will feel the owner is sharing the risk with them and may be more willing to offer more favorable terms and rates.
This is a highly liquid or saleable asset such as cash, investments, a house or a vehicle that is required by traditional bank loans in case of loan default. The use of collateral can improve the terms and rates of the loan, because the bank is essentially receiving a backup for re-payment.
These are smaller loans underwritten by the SBA and a bank pool. While the size of micro-lending loans can be very limited, the terms are usually flexible. Business coaching and technical assistance are often part of the deal.
There are a variety of loan offerings administered on the federal, state and county level. For example, financing programs run by the U.S. Department of Agriculture can offer very flexible rates and terms if your business fits the requirements.