With an eye-watering number of interest rate hikes in 2023 and the cost of living only getting more expensive, it’s a tough environment for small businesses right now. These challenges are compounded even further when you consider that business loan repayments have been going up and up this year as well.
So if you are already trying to balance razor-thin margins, how can you get some financial relief on your loan? Here are some tips to reduce the amount of interest you are paying.
Rising interest rates means more pain for business owners
While we always knew interest rates would eventually rise, few could have predicted just how aggressively the RBA would apply those increases! While millions of homeowners are already feeling the pinch, spare a thought for the business owners who are trying to earn a living while paying even more in interest on their loan repayments.
If you’ve been searching for ways to save a few dollars wherever possible, here are four tips to help you reduce the amount of interest you pay on your business loan:
1. Make a few extra repayments
There’s no denying that a higher interest rate can impact your ability to repay your business loan. When setting up your loan, it’s worth asking about any additional features that may be included, such as having a business offset account. By putting funds into this account, you can lower the amount of interest you’ll have to pay while still having access to that money should you need it.
Alternatively, speak to your lender about paying extra on top of your regular repayments every cycle. Be aware, however, that some loans may be set up in such a way that you will pay a fee for additional repayments – in which case it may not be worth it in the long run.
2. Consider making loan prepayments
If business is booming or you receive an unexpected cash windfall, you might look into the benefits of paying off your loan in advance. While you may not be able to eliminate your loan entirely, by taking out a sizeable chunk of what’s left on the loan you can minimise the interest you pay over the coming months and years.
Much like making additional repayments, however, you will need to check with your lender if there is any prepayment fee. This is usually a percentage of the outstanding amount on your business loan, so if there is still a large amount left then it may not be a worthy use of your extra funds.
3. Shop around for competitive loans
Just because one lender set you up with a business loan in your time of need, that doesn’t mean you are beholden to them for the life of the loan. In fact, it’s actually more responsible from a business perspective to keep your options open.
There’s no harm in scouring the market and comparing what different lenders can offer you. Especially if your current lender’s interest rate has skyrocketed recently, it might be worthwhile to find a more cost-effective one. Contact Capital Tree to find out how we can match you with a broker who can help you switch to a new lender and get a lower interest rate on your business loan.
4. Negotiate terms
In the competitive world of commercial lending, few things are set-and-forget. On the contrary, there is always room for negotiating your rate – especially if you already have a personal or business bank account with your lender. Partnering with a financial broker can make it easier to reduce your business loan’s interest rate and improve your cash flow in the near term.