Get Your Growth On: Practical Tips For Low Rate Business Loans
Growing in any market requires financial security, meaning if you want to grow your business, secure funding is essential. When looking for a business loan, it’s crucial to be mindful of the interest rates offered and ensure you can afford them. However, in order to find the best low rate business loans to apply for, it’s vital to understand what they are exactly.
With this in mind, we’ll explore low interest rate loans in depth below to help you find suitable funding options for your business.
What Are Low Rate Business Loans?
A low-interest business loan is a cost-effective funding solution for expanding your company. Generally, interest rates for business loans differ depending on the provider.
Credit unions, traditional banks, and online lenders all offer business loans. Online lenders usually have some of the best deals when it comes to business loans with lower rates.
Interest is a major expense to take into account when taking out a loan, as it’s associated with almost all types of loans.
The cost of borrowing money for your business from a lender is called an interest rate. Your interest rate will be estimated differently depending on the type of loan you apply for and the terms of your loan.
Business loans with lower rates are generally better for companies as they may cost your business less over the loan’s term. High rate loans are typically more expensive, and businesses may have a more challenging time paying them off.
Key Features Of Low Rate Business Loans
Interest Rate
The interest rate associated with a business loan refers to the amount the lender charges for the use of the funds. The interest rate is a percentage of the principal (the loan amount).
Typically, business loans have either fixed or variable rates, which has a big impact on how your interest rate is set up and estimated. As the name implies, a fixed rate is set for a predetermined amount of time, usually for the duration of your loan.
Fixed interest rates do not change over the repayment period of the loan. For example, with our Lumi business loan calculator, you can calculate the exact rate you may get for the amount you intend to borrow.
In contrast, a variable rate is dependent on the market as a whole. This suggests that based on the state of the market, your interest could increase or decrease.
As variable rates go up and down, you may benefit from potential savings if the rates go down during the term of the loan. However, the opposite may also be true if the rates rise and you may end up paying higher costs.
Loan Terms
Business loans may be long-term or short-term. The loan term is another criteria that will influence your rate. Usually, long-term loans have lower interest rates than short-term loans.
Short-term loans usually last from three to twelve months, which is why the rates are higher. However, they may have lower overall interest charges compared to long-term loans due to their shorter repayment periods. On the other hand, long-term loans have lower interest rates but their repayment periods can last from a year onward.
Collateral Requirements
Another factor that may influence the rate of your business loan is whether you apply for a secured or unsecured loan. Unsecured loans generally tend to have higher interest rates due to the lack of collateral.
In contrast, secured business loans require collateral, which is why lenders tend to offer more favourable rates. If you offer any property or an asset as collateral, you may expect a lower interest rate, as there is less risk for the lender. This is because if you default, they can seize the asset to make up for the loss.
Credit Score
Your credit score also influences the rates you may receive. If you have a good credit score, your rate can be lower. A lender will examine both your business and personal credit scores when you ask for a business loan.
Credit scores support the lender’s estimation of your loan repayment ability for the funds. In other words, you can have higher chances of getting a business loan approved at a lower rate if you have a higher credit score.
Tips For Securing Low Rate Business Loans
Boost Your Credit Score
As we mentioned, your credit score has a significant influence on the rates you get offered on your loan. If you feel like your score is not in the best shape, it’s wise to work on improving it before applying for a business loan.
Some ways to improve your business credit score and to keep it high usually include the following:
- Paying all your bills on time
- Actively reducing debt
- Avoiding new credit inquiries before applying
Compare Loans From Various Lenders
It is important that you explore your options before accepting any loan offer. This includes business loans from:
- Traditional banks
- Credit unions
- Online lenders
To find the best rate, compare financing options from different lenders. Comparing the lenders’ offers may help you determine which one has the best and lowest rate business loans for your needs.
Consider Loan Type
To select the best loan choice for your business needs, it’s crucial that you explore and fully understand the distinctions between the numerous loans available. There are various business financing options.
- Term loans: These are usually a lump sum of cash with predetermined repayment dates. They are suitable for buying company vehicles, equipment, building supplies, etc.
- Credit lines: A flexible finance solution that lets you borrow money up to a set amount as needed, usually for working capital.
- Equipment financing: These loans are given out to buy equipment for the business.
- Invoice financing: Loans secured by unpaid invoices are known as invoice financing.
Prepare Strong Financials
Lenders usually offer better rates to businesses with good financial health as they view these businesses as lower risk. This is because good financial health assures them of the business’s responsibility and ability to repay loans on time. Therefore, when you apply for a low-rate business loan, it’s generally wise to do the following:
- Prepare up-to-date financial statements
- Have a clear business plan
- Present solid cash flow management
These can show potential lenders that you are responsible and that your business is worth investing in.
Conclusion
Low rate business loans can be a strategic, cost-effective financing solution for businesses looking to grow.
You can make informed decisions by understanding different types of loans and the factors that affect business loan interest rates.
Securing low rate business loans can be a crucial step in maintaining financial stability and expanding your business.
Explore Lumi’s Best Business Loan Options
We’re proud to offer the best Business Line Of Credit as awarded by WeMoney Awards 2024. This revolving, low-fee finance solution offers full flexibility at zero risk, helping you grow your business while maintaining financial stability.
We also offer Rate Ease™, the first rate-reducing loan for those paying higher interest rates because their business is less established. This financing option can help businesses save up to 11% on total interest charges.
If you’re ready to apply, click here. Secure the funding you need to grow your business now!
If you’re interested in learning more about our business finance options visit the Lumi website or get in touch with our friendly team via phone at 1300 005 864 or email sales@lumi.com.au.
