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How to Negotiate With Your Business Lenders

By Spodek Law Group | February 20, 2024

How to Negotiate With Your Business Lenders

Getting financing for your small business can be challenging. You likely need the capital to help your business grow, but lenders will want to ensure they get repaid. Negotiating with lenders requires understanding their concerns so you can get the best loan terms possible.

Do Your Research

Before starting negotiations, learn as much as you can about business loans and the lender you’ll be working with. Read online articles from sites like Reddit and Quora to understand negotiation strategies. Also research the typical interest rates, fees, loan terms, and collateral requirements for the type and size of loan you need.

Understand the Lender’s Perspective

Lenders want assurance they’ll get repaid if you default. They’ll review your business plan, finances, collateral, and credit score to gauge the loan risk. Know that criteria before negotiating so you can make a strong case for your business. If possible, highlight how you’ll use the loan proceeds to improve profitability and cash flow.

Be Realistic

Request loan terms that reasonably fit your business finances and capabilities. Asking to pay too little or delay payments for too long can signal your business is high-risk. Instead, forecast realistic financial projections and have a plan to repay the loan through business growth and profits.

Consider Using Collateral

Putting up collateral, like business assets or personal assets, gives the lender more security you’ll repay the loan. This can help you negotiate for better rates and fees. Just carefully weigh if you want personal assets at risk before offering them.

Highlight Your Track Record

If you have an established business, detail your success to date. Provide financial statements showing consistent revenue and profits over time. This can help negotiate better rates and terms compared to a brand new startup.

Clean Up Your Personal Credit

Lenders will check your personal credit, so ensure your credit reports and scores are strong. Pay down debts, dispute any errors on your reports, and pay all bills on time. This gives you more leverage to negotiate the best possible rates.

Be Ready to Walk Away

If a lender won’t work with you or requires unreasonable terms, restate your position clearly and be ready to walk away. This shows you know your worth and aren’t desperate. Plus it opens the door to finding a better lender willing to negotiate loan terms you can live with.

Have a Co-Signer

If the lender sees too much risk in your new business, provide a co-signer with strong finances and credit to back the loan personally. This gives the lender another source of repayment if your business defaults. Just be sure the co-signer understands the responsibility they’re taking on.

Shop Multiple Lenders

Applying to several lenders makes each compete to offer you the best deal on rates, fees, and terms. Having multiple offers strengthens your negotiating position to get the lender to bend more to your needs.

Highlight Social Impact

If your business will have a positive community or environmental impact, highlight this in your loan application. Some lenders offer better rates and terms for socially conscious businesses. Emphasize how the loan can help further those positive impacts.

Be Flexible on Some Terms

While you want to negotiate the best deal possible, also show willingness to be flexible on certain terms that matter less. This good faith can make the lender more likely to bend on the terms that do matter most to the health of your business.

Consider Securing the Loan Personally

Rather than the business taking on the loan, you as the owner can secure it personally and invest the money into the business. This shifts liability off the company so if it fails, you still have personal responsibility to repay the loan.

Use a Broker

Working with a broker allows you to negotiate with lenders indirectly. The broker packages your loan request, shops multiple lenders, and leverages their industry experience to negotiate favorable terms on your behalf. Just be aware they’ll charge a fee for this service.

Offer Equity Instead

Some lenders may accept a small ownership stake in your business instead of high-interest loan payments. This equity financing shifts some repayment risk onto the lender in exchange for sharing in future profits if your business succeeds.

Get Help from the SBA

The Small Business Administration (SBA) works with approved lenders to guarantee loans for qualifying businesses. This security helps lenders provide more agreeable rates and terms. Just know the SBA has an extensive loan application process.

Use Your Network

Talk to other business owners about their experience securing financing. See if they’re willing to make an introduction to lenders they’ve worked with successfully. Coming as a referral gives you credibility to negotiate better deals.


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