5 tips to get cheaper business finance

Keeping the cost of borrowing down is bound to be a priority for every business. But often simply looking for a low interest rate isn’t going to be the best way to do it. Here’s our top tips for keeping business finance affordable.

1) Urgent money is often expensive money – plan ahead.

Needing a loan urgently will often be expensive. Planning ahead is key. This allows you to shop around for the most favourable rates and the loan that best suits your needs. Furthermore, scrambling for a business loan at the last minute may send a message to the provider that there’s been a lack of forward thinking. Less time also means less power to negotiate with potential lenders.

A common mistake made by SMEs is running down their available capital, and only then considering where their finance will come from next. Working on an annual basis (or even further ahead), meeting with business loan providers and forecasting can all help predict cash flow and credit.

2) Monitor and maintain your business credit score.

Recent research by Experian showed that 19% of business owners they surveyed had little or no understanding of business credit scores, and 37% didn’t know what their own credit score was. Similarly, 40% didn’t check their suppliers’ credit score.

Monitoring your credit score and that of clients and suppliers can improve cash flow. Last year it was estimated that British SMEs were owed as much as £44.6 billion in late payments and unpaid invoices. Keeping abreast of credit scores can minimise this issue by helping you not get caught out.

The higher your business’s credit score the easier it is to get a business loan. You can increase your score by taking steps like paying bills on time and reducing debt. Your credit score is an important factor in lenders setting rates and terms when seeking a business loan, as well as competing for tender and negotiating contracts.

3) Keep in-depth and up-to-date management information.

Keeping track of management information and records of your business are important in order to both be legally compliant, as well as keeping your business finance prospects in a healthy state. Staying on top of expenses, debts and creditors makes it easier to plan ahead and find cheaper business finance. It also helps to ensure business loan repayments are made in a timely fashion, thereby avoiding fees and penalties.

The development of cloud-based accounting software makes it easier for SMEs to keep on top of their accounting work and process data.

4) Are you able to offer security on the loan?

Interest rates on secured loans tend to be cheaper, and it’s usually possible to borrow more capital. They’re arguably a less risky prospect for lenders and therefore often come with a great deal more flexibility and longer repayment terms (usually between 2-10 years), meaning it can be easier to plan your cash flow long in advance. Business loans are commonly secured against the likes of property or other assets, and may also require a personal guarantor to be liable.

5) Consider more flexible products that charge you based on what you borrow each month, rather than a set amount.

Business overdrafts can offer significant flexibility to a business, as their charges tend to reflect what you borrow on a monthly basis. Research we published earlier this year showed that 46% of the 2,006 SMEs we spoke to had a business overdraft, with a third of these from non-bank providers. One major reason for this is flexibility – 48% felt it was the most flexible option for making payments and accessing money.

This varies greatly from a term loan, for example, which will typically charge you a set amount each month, regardless of how much of the money you actually used in that period. For a business that simply wants to keep on top of their cash flow, you may find an overdraft-style option is the cheapest option overall.

At Growth Street, we’ve transformed the business overdraft. To find out how we could help your business, visit growthstreet.co.uk/growthline or call 0808 123 1231.

Written on in Business Insights Borrowing