How to Manage Interest Rates for a Small Business Loan

When you take out a small business funding contract, you have a few options. A fixed-interest rate plan is usually available to businesses with great credit and proven steady income. A variable interest rate funding setup may be an option for businesses with good credit or lower income levels. These tips will help you manage interest rates for a small business funding plan.

Examine Loan Contract

A funding contract can be complicated. It is often filled with legalese, so if you’re not an accountant or a lawyer, you might need some time to read it or take it to your lawyer or accountant in order to make sure that you understand it. The funding contract also contains the fine print, including what happens if you’re late on a payment. The interest could change and the fees or penalties if you default.

Know What Type of Contract You Have

There are more than 20 types of small business funding options. The types include installments, small business administration funding, equipment funding and invoice financing. Different types of loans are available through different types of lenders. Some lenders may write you multiple types of contracts, such as an equipment funding contract for buying capital and an installment funding contract for operating expenses.

Factors Affecting Credit Loss

Experts suggest that Q&E adjustments will change with CECL. What this means for you as a small business owner is that it could take longer for your small business loan application to be processed. You may need to work with your accountant or run the numbers well in advance of when you think you’ll need the funding. This way, you won’t run out of time or get stuck because of the time-consuming nature of the CECL regulations on small business funding. Plan on the processing taking an extra two weeks beyond what it would typically take before the updated CECL regulations went into effect on January 1.

Consider Collateral

If you’re confident you can pay the money back, you might get a lower interest rate by using collateral. The collateral might be equipment, property or other assets. Many banks traditionally ask for you to contribute at least 20% of the cost of the loan. Keep in mind that if you offer collateral and miss even one payment, you could lose your collateral.

The terms of borrowing money can be tricky. Do your research and turn to a small business accountant or lawyer if you need professional advice.

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