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4 Ways To Improve Your Chances Of Getting Good Interest Rates On Business Loans

By Author: Manish Damani
Total Articles: 6

To start a business or to maintain the functionality of the existing business the business owner requires funds. The main concern of businesses is the method of arranging funds. The business owner can resort to the tool called as business loan. A business loan is an effective tool that is provided by financial institutions. A business loan can be availed by individuals who either own a business or want to start a business. A business loan can be used to maintain the productivity of the currently existing business. A business loan is similar to a personal loan, the only difference between the two is that a business loan is tailored to meet the specific requirements of the company in an attempt to better suit the company’s unique requisites. Through a business loan, the business owner can borrow a sum of money from a financial institution with a certain interest rate and a monthly repayment option.
A business loan may be secured or unsecured. The interest rates on business loans are generally low. A business loan interest rate is of two types, a diminishing rate of interest and a flat rate of interest. These two types are explained below in detail:
1. Diminishing rate of interest:
As the individual who has borrowed the amount from the financial institution starts the repayment of the loan through Equated Monthly Instalments, the principal amount reduces. Thus the interest will be applied on the remaining principal of the loan amount and not on the entire amount that was borrowed. This method is called Diminishing rate of interest.

2. Flat rate of interest:
On the other hand, in flat rate of interest, the interest is calculated for all the EMIs on the amount borrowed by the business owner. The diminishing value over the months is not taken into account.
4 ways to improve chances of getting good business loan interest rates:
1. Maintaining the credit score is a good way to get better interest rates. The financial institutions conduct a background check on the individuals applying for a business loan. Thus maintaining a good credit score will improve the individual’s chances of getting good business loan interest rates.
2. Time in business is also an important factor. The number of years the business has been run for matters for the interest rates. The longer a business has been in existence the more is the probability of getting a loan.
3. Monthly income generated by the company is a factor that matters for any type of loan. All businesses have different periods for revenue cycles, but maintaining a consistency is crucial. Thus the average balance is calculated by financial institutions to determine the loan amount.
4. Providing collateral to the financial institution also improves the chances of getting good business loan interest rates. When the individual availing the loan provides collateral to the financial institution, they have more trust in providing the loan as they have gotten some sort of security.

Author bio: Manish Damani is a professor in a reputed college and has intensive knowledge in the field of finance. In his spare time, he likes to write on finance related topics, in order to share his knowledge. In this article he has written on the top 4 ways to improve your chances of getting good interest rates on business loans.

Total Views: 37Word Count: 546See All articles From Author

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