An Eagle’s Eye On A Business Loans

Lending money for your business and making the banks feel happy is a very big challenge in the lives of many SMEs.

But, let me tell you how to handle it when it comes.

You have certainly heard that the interest rates of mortgages are increasing; but have you for once asked yourself a question whether it will affect the current business loan?

The answer to the question is certainly “YES” but not only that, it will make it difficult for a small business to grow in future.

Many banks and some other business borrowers base their rates on what it costs them to get the money they give out. Some creditors really borrow the money they give out from the banks, and they have to do it based on the federal fund rate. Although the Federal Reserve has left the rate untouched to near zero, some expect that it will start going up in the near future, forcing the main rate to eventually go up.

The net carryout here is that all companies that credits are matter to interest rate risk. The general risk to each company can be affected by a number of factors:

Length of loan term (time).

One of the biggest elements of the interest rate risk to company is to reveal the loan term (time) on its lending. As its short term lending rate rises, the company may find its end result affected if it has to refinance its bank debt without being able to pass this increased cost on its customers.

Credit risk.

A company’s credit risk is in part determined by its debt to equity ratio. As interest rate increase, equity goes down because the company is paying out more interest. Due to the increase on the general credit risk of the company, it will in turn cause borrowers to increase the interest rate on the new lending. The more debt coverage a company has, the higher the general interest rate is.

If you currently have a variable rate loan, then you may be thinking of the increase in your interest rate for the current year or for the years to come.

But if you have a fixed rate for the loan, your bank may be thinking that you renew your loan at the greater rates than before as those rates increases.

Getting a business loan will be harder in some respects, it will be guaranteed based on an ability to pay up the loan (I mean both the principal and the interest). But when the interest rate goes higher, it means that the general payments will also increase, and thereby making it difficult for a business to qualify for the loan.

Offset the challenges.

In this case, it is a stage where you will try and do some things to offset the challenges.
For instance, if your loan is based on asset, try to keep the values of those assets up-to-date.

In the other hand, if your loan is inventory based, be assured that as the prices fall, you will be able to take appropriate inventory records, but if prices increase, that you can explain clearly the increase value of your inventory.

Most of all, even if the bank you borrowed the money from allotted patience for a small covenant violation, make sure that you are back within the covenant as soon as possible.

Position yourself very well.

What will you be able to do so that your business is counted among those that are eligible to borrow?

  • Focus your mind on your cash flow, profit and loss statement. Stand firm to explain clearly that you can make payments on the loan you are asking for, and if the interest rate increase, you will make payment under those circumstances that surrounds you.
  • Explain clearly that the loan you are requesting for is not being used to fund losses in business but to help the business grow and become profitable to you.
  • Start to catch in fixed rates as many as you can now, before the interest rates and the prices rise.
  • Take a look at the longer-term (time) supply agreements, buy, rent and even labor agreements while rates and inflation is still down.
About Rita Nnamani 19 Articles
Rita Nnamani is a passionate writer. She specializes in research writing for basic human needs. She writes on other blogs as a guest blogger.

Be the first to comment

Leave a Reply

Your email address will not be published.


*