Which Factors Can Affect Interest Rates for Business Financing?

 In Business Tips, Small Business Funding

When people seek to open their own business or promote business growth, one of the first things they need to consider is how to fund it. If you don’t have enough working capital to get your company started or take it to the next level, financing is often necessary. However, opting for financing will mean paying interest. One of these includes the interest rate and how personal and external factors can affect it. Interest rates can vary due to a variety of personal and external factors.

Credit Rating

Most banks will provide financing to a company based on their current credit rating. This will provide them with the information needed to determine its interest rate and how much is financed. However, most new business owners don’t have any past business history to rely on. According to NFCC, banks then turn to the owner’s personal credit score to determine the interest rate that is going to be given. Therefore, it is incredibly important for owners to make sure that their credit score is in good standing before even applying for any financing.

small business funding

Environmental Factors

Remember, banks are taking a risk on your ability to pay back your money on time. Therefore, when determining not only your amount but also its interest rates, they will often take into consideration the environment around your business. According to nCino, environmental factors such as the general market condition of either the geographical area or the industry to which the business has exposure and other similar issues can potentially result in a credit loss for the bank. You should assess industry conditions and your company’s surroundings to determine if any liabilities are present before applying. If any exist be prepared to receive higher interest rates or possibly even have your application denied

Annual Turnover

When banks are determining your interest rate, the annual turnover of your company comes into play rather quickly. Having a healthy or high annual turnover demonstrates to the bank that your company is doing well, and thus, the chances of defaulting are low. If your company has a high annual turnover, then you can even begin to negotiate a lower interest rate for your company.

Business History

New businesses and those with less than two years of business history are viewed as risky by banks and other traditional lending institutions. These businesses must meet more stringent approval requirements to receive a loan or a line of credit. If they are approved, the interest rates than that which would be imposed on a more established business.

Company Financials

It’s crucial to consistently monitor the financial health of your small business. This will allow you to quickly identify potential problems in your financial statements and address them so you can maintain a positive cash flow. When you are ready to apply for business financing, a favorable balance sheet, cash flow statement, and profit and loss statement can have you receiving lower interest rates.

small busiess financing

Beyond Traditional Lending and Interest Rates

Obtaining a favorable outcome and interest rate when applying for traditional financing is possible under the right conditions but where does that leave those with less than perfect credit. Alternative financing options can help your business and in some cases, they may even be available if you’re just getting your business off the ground.

Because it is expanding access to small business funding, alternative financing is on the rise. CFG Merchant Solutions offers a variety of funding options that can provide a fast, effective financing solution for your business. We can often provide funding for businesses with less than perfect credit or brief credit histories.

Our team brings to the table more than 60 years of institutional investment banking experience in the credit, commercial finance, and capital markets. Whether it’s a merchant cash advance, equipment financing or any of our other funding options, we will guide you in choosing the perfect solution to supplement your budget for expansion. Contact us or apply online today

 

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