Business owners who’ve been around for a while understand the value of affordable financing, such as small business loans with decent terms. Financing can act as a lifeline for businesses that are temporarily experiencing an issue with cash flow as well as helping growing businesses flourish.
However, a good loan is quite difficult to come by, particularly for small businesses since they are seen as a riskier bet for lenders and banks. And if you don’t have a stellar credit rating, your choices for a good loan can shrink even further.
But, if you are applying for a business loan and receive a not-so-good offer, all is not totally lost. A good compromise is a loan renewal which is a cheaper choice for you in the long run.
Well, let me explain to you it's fine points and how loan renewal can be a good choice for business owners like yourself.What is Loan Renewal?
Loan renewal is taking out a loan with small business lenders or mobile money lending apps such as Virginmoney. After you have finished paying it off, you’ll take out another one.
So, why is this notable?
Your business requires $150,000 as you want to expand your existing store or maybe buy new tools and equipment. However, the best offer that a lender gives you is just $75,000 since you’ve only been in business for a short time.
Agreeing to take the loan can benefit you if the possibility of renewing the loan— given that you meet the criteria of the lender— is available once you have completely paid the $75,000 loan.
At this point, you have already developed a good relationship with the lender. They are familiar with you and your business, and they know that you can indeed repay a loan for $75,000 without any problem. Now, you can have a loan renewal and see if the lender is even willing to lend you the remaining $75,000 and at a lower rate.
Benefits of Renewing Loans1. Getting The Full Amount Of Loan, Eventually
The most obvious benefit of loan renewals upfront is that it helps you obtain all of the funding you need, even if it’s not all at once. If you need a loan of $150,000 but only qualify for half, being responsible with payments can help you eventually get the full amount you need.
Let’s say, you only “want” the $150,000 loan since that’s the estimated amount to cover your business needs, however, your funding is not that crucial. You “want” the money to buy new tools and equipment, however, the “need” is not that pressing and instead you can just upgrade every piece of tool and equipment for less. Or maybe you really don’t need to expand your building at all and only need some renovations and new decorations. Thinking about it like that, you might realise that you could get by with half the funding you thought you needed in the first place.3. Interest Won’t Be Difficult With Half
With loan renewals, it will cost you less money than what you would have paid if you were approved for the full amount.
You will no longer have to pay back the interest on $150,000 but only on $75,000.4. Better Eligibility
When renewing your loan, you might even be eligible for a more generous repayment term and a better rate than you were the first time around, thanks to your responsible and diligent payments. You might also have more collateral or the finances of your business might have improved.
Steps To Make Yourself A Candidate For Loan Renewal
Loan renewals are never a sure thing, however, it is a fairly common practice in the lending world. To give yourself a better chance for getting approved for a loan renewal and with a better rate, take the following steps while you pay your original loan.
- Make payments in a timely and responsible manner.
- Keep an eye on your credit report and score and ensure that there are no mistakes or errors on your account. If there are mistakes, make sure to correct any records promptly.
- When possible, make sure to add to your bank balance to improve your bank balance average.
- Keep your credit utilization ratio low by paying off debts on your credit cards and other lines of credit early.
- Pay all business-related bills, such as rent and utility bills, on time.
Not only will the above practices make you look eligible for renewals, but they are also great business practices that will serve you well in the long run.
Header Image: https://www.flickr.com