When it comes to easy financing of business funding requirements, business loans often top the list. Simple reasons like their quick availability, lack of collateral requirement, and financing of high quantum have made them popular funding options in the entrepreneurial world today. Many financial institutions now also offer affordable business loan interest rates to make borrowing affordable for enterprises. However, what remains a bit of a concern is that these loans, being unsecured advances, intrinsically attract rates that are a tad higher than rates for secured loans.
Businesses thus often remain in the lookout for ways that can help them check the interest liability creation, thus impacting their total repayment amount. It should be welcome to know that there are various ways a business can utilise to reduce its total interest liability of the loan repayable. We thus bring you some of the easy tips that can help put a check on your interest liability.
1. Go for a Thorough Loan Offer Comparison
As already mentioned, there are several business loan companies providing the financing today to needing ventures. They also come with varying offers on these loans, especially with interest rate levy. Although the rates have a regulated benchmark, the highest levy is subject to the financial institution’s discretion based on the cost it bears on loan processing and holding the credit.
The lending rates on these loans can thus vary between point percentage and percentage in whole numbers, any of which can mean significant difference in repayment liability. It is thus a borrower’s discretion to go for a thorough comparison of various interest rate offers on business loans to opt for the lowest rate that keeps interest payable in check.
2. Choose the Type of Interest Levy System Carefully
Interest on business loans, along with on several other unsecured and secured financing options, is levied and calculated under different systems. The levy system is categorised under fixed and floating rate system, both of which bring their sets of benefits and disadvantages.
As for business loan interest calculation, it is determines based on flat and reducing rate system. You must assess the impacts of both these systems on your business loan and choose the one that helps reduce your interest payout.
3. Go for a Business Loan Offer Under a Subsidy Scheme
The Central and the State Governments from time to time introduce various schemes that provide subsidies on business loan interest rates, allowing SMEs to enjoy affordable borrowing. You can check out some of these schemes and find your business eligibility for benefits under these schemes. Accordingly, apply for a suitable business loan to receive subsidy and reduce total interest payable on the advance.
4. Choose Higher EMIs for Repayment
Another useful way to save on total interest payment for your business loan is to opt for higher EMIs with a suitable business income. So, when selecting the loan details to apply with, you can choose a shorter tenure, which should keep your EMIs high and help with early repayment. This should help you keep a check on the total interest payout. Make sure to choose high EMIs only up to a point that doesn’t strain your business finances.
5. Utilise Prepayment Options
Lending institutions allow businesses to prepay their loans at any time before the tenure ends against a nominal charge. As it helps close your loan account early, the total interest liability is reduced too. You can choose between loan part-prepayment and foreclosure to ensure early repayment of your loan.
6. Refinance Your Business Loan
If your lender so provides, you can choose a balance transfer facility to refinance your business loan outstanding with a new lender offering lower rates of interest. This will not only he;p reduce the interest but also allow you a better opportunity at other favourable loan terms.
Another smart way to reduce your business loan interest payable is to increase your repayment amount with any increase in income if you didn’t choose higher EMIs initially. Further. work on your credit score and history improvement with disciplined management of credit so that an improved creditworthiness allows you to negotiate with your lender for attractive and affordable rates of interest along with other terms of service.