Negotiating better loan terms can save thousands of dollars over the life of the loan, though the process demands some homework and can be complicated.
This means knowing your priority. For example, when you go to money lenders to negotiate terms of the package, you might want to put more weight on lower interest rates than higher monthly payments, or longer repayment periods than shorter ones.
Know Your Goals
For example, loan applicants might feel they have to accept what the lender offers; but in fact, they might not. If a borrower improves his or her credit score and shops around for financing before getting into discussions with lenders; if the borrower is willing to negotiate the terms of the loan; if he or she considers the length of the loan – shorter loans can be more expensive, so choosing one that doesn’t fit the borrower’s plans might not be the best deal – if the borrower knows the fees that will be charged, and the interest rate; and if the borrower has all of this in writing before they make an application, they could be assured of borrowing at the best terms they can get.
In fact, honing those negotiating skills could mean saving thousands in interest rates and fees over the life of the loan. Borrowers need to tailor their negotiations to the type of loan and the policies of the lender. Learning, persistence, and the ability to respond to rejections make for savvier bargainers over time. If you have a Plan B, be it crowdfunding or mortgage refinancing, against a lending denial, rejection or counteroffer, you can treat them all the same. Your offer is accepted when it’s your preferred offer.
Know the Lender’s Priorities
Each lender has its own strategy (and its own set of policies) for negotiating loans, and it is essential to understand them if you want to bargain successfully. For example, many large banks will rarely compromise on loan terms whereas, if you’re looking at a finance company or online lender, or if you’re already a member of a credit union, you might be in a better position to negotiate.
Understanding what is important to your business can be helpful here, too. Never ask for unrealistic terms – this will cause the lender to view you unfavourably and probably stop the conversation dead. Instead, use market norms or your financial situation to anchor your requests, ask for flexibility if you’re offering a personal guarantee or paying a fee, and attempt to use competing loan offers to pressure lenders into a price concession (this really strengthens your hand, but do maintain professionalism and reserve in these deliberations).
Be Flexible
Meaning, lenders want your business and will offer loan terms and fees to get it, but also, it’s helpful to be flexible in establishing priorities before the negotiations start.
And it can be equally useful to understand what your creditor has in mind and what constraints she may have faced in reaching that position. You can better predict if a resolution that satisfies you will also be satisfactory to your creditor by researching creditor policy, creditor reputation and, if you know the outcome of other creditors’ negotiations with the same creditor, what that creditor was prepared to accept.
Borrowers should enter negotiations with lenders armed with competing offers, making it clear that you have cheap credit elsewhere at your fingertips, formalised in writing, and that you won’t be afraid to walk away from the negotiations if a deal isn’t offered that ‘makes the most sense’ specifically for you, which in turn will allow you to feel more empowered using your negotiating skill to improve the terms.
Be Bold
Bold people, rather than being risk-averse like others, are willing to put themselves out there even when it’s uncomfortable. This is what defines them.
In negotiating a loan, it is important to maintain your emotional control so that you make the most business-friendly decision. This is where some common sins – overestimation of leverage, misunderstanding of the terms of a loan document, and the failure to seek other financing options – re-emerge.
This process should enable you to successfully negotiate lower terms with lenders, but remember that a promise is a promise, so you must follow through, and be prepared to pull the plug on any deal that does not look in the best interests of your organisation. researching and understanding how to apply strategic negotiation techniques can help to get the best possible deal with your organisation’s lenders.
Keep Your Emotions in Check
Be present and mindful during the negotiation process. Being emotional in the process could cause you to overreact and might also make it harder to get the terms of the loan which you are looking for.
Furthermore, during your negotiation process, do not put forth unreasonable demands. Keep your requests on the margin of reasonableness based on market norms and according to your financial capabilities. Your Strong Financial Profile: If your business holds assets that can be offered to convince moneylenders of your creditworthiness, you enjoy an advantage. Having documentation illustrating your company plan’s viability can help you obtain more favourable loan conditions.
Overestimating Your Leverage: Many business owners go into the negotiation assuming that their leverage or collateral will automatically improve loan terms, but lenders assess risk differently than business owners and many lenders are not as impressed with your collateral as you thought they would be. Failure to Consider Alternative Funding Sources: Failing to consider your alternative funding sources ahead of negotiating weakens your ability to walk away from negotiations and leaves you with less than optimal loan terms.