Interest rates are one way a broker can stand out from others in their field. With overall interest rates rising however, getting the best possible loan rates from lenders presents some interesting challenges. This is particularly true as lenders often shy away from making small business loans, preferring those loans where a company is well-established, has a proven track record, and has sizable assets. The irony is these are the same firms which may not need a loan.
As a finance broker, you are probably dealing with a company who may be struggling to obtain capital from their local banks. This means you have to evaluate your client’s needs, identify the right lender, and negotiate the best possible rate to meet their needs with that lender. Finding the right leverage when negotiating with a lender isn’t always easy but there are three things you can do which may help.
1. Identify the Business Strengths
When the business you represent has strong contracts with customers, has a sterling collection record, or has a low debt ratio, you have the ideal leverage to negotiate a lower interest rate. These are all plusses which can be used in discussions with a lender. Make sure you highlight these strengths when you submit a loan package because they could help you get a lower rate.
2. Offer a Lender Collateral
For some borrowers, collateral is the best leverage they have. For example, a company that has valuable equipment may be able to live with a lien on the equipment. This works best when a company does not have to worry about upgrading due to technological advances. Many lenders feel more confident lending when there is a backup plan in the event of default. This may also be helpful when seeking a lower interest rate.
3. Consider Lines of Credit vs. Loans
Lines of credit often have lower interest rates. They also offer other benefits including your client’s ability to use funds on an as-needed basis. The company pays interest only on the funds which they use, and the balance of the loan remains on deposit with the bank until it is needed. The added benefit of this type of financing is the customer also makes payments only on what they are using.
Consider an Alternative to Bank Loans
Keep in mind, lenders are in business to make money. To maximize their profit, they may be offering a variety of programs with slightly higher interest rates than you might otherwise expect. What many financial brokers overlook is the ability for their customers to get the money they need without having to take on the additional burden of debt. This can be accomplished through the process of invoice factoring.
Factoring invoices can provide numerous benefits to your customer. Some of those benefits include:
- No Debt– factoring means a business owner has no need to borrow money. Lack of debt improves the business balance sheet. Not taking on debt also means there is no loan servicing to be concerned about meaning the business is not worried about having money to make loan payments every month.
- Transfer of Risk – instead of worrying about collecting money from a client, when a business factors an invoice, they are transferring the risk of the collections from themselves to the factoring company.
- No Hidden Fees – unlike a bank loan, you will not incur a late fee for payment nor will you incur a penalty for paying early. If a client pays the factoring company before the invoice is due, it merely improves your customer’s standing and strengthens their position the next time they opt to factor an invoice.
One of the numerous benefits of working with a factoring company is interest does not accrue on an outstanding balance. In fact, your customer will know up front exactly how much they are going to pay in fees. Another significant benefit is time: You never have to wait weeks, and in some cases months, for an answer. In most cases, you will know within a short period of time whether a transaction is approved, and your client will have the money they need within a few business days.
If you have clients you feel could benefit from invoice factoring, you should contact Capstone immediately. We’re committed to working with brokers across the country who have customers who need capital to keep their business operating. We can help you get your customer the money they need without worrying about the burden of added debt. Contact one of our account representatives today at (212) 755-3636, reach out to us via email at or fill out our simple online contact form and let’s see what we can do to help.
