The reduction in interest rates to 5.0% from 5.25% has been a long time coming and may well be a sign of better times to come.
But in reality, a 0.25 change on an SME loan doesn’t boil down to much. Owners and CFOs certainly won’t be cheering as much as those on variable rate residential mortgages:
The good news is that there are plenty of big savings to be made – they just aren’t from small tweaks to the Bank of England base rate.
The three things that make the biggest difference in interest rates on SME financing are being able to give lenders the paperwork they need to trust you’re at low risk of defaulting; having the time to go through a slower application process; and being prepared to switch products.
Using these three tactics we brought down one business’s funding costs from 28.0% interest per year to 13.7%, while also extending the length of the loan from two years to five.
Convincing lenders that you’re a low-risk investment can bring rates down by as much as 15% and also extend the term of a loan.
We typically help our clients assemble two years’ worth of accounts, the past 6 months’ bank statements, a recent profit-and-loss statement, a balance sheet, plus, if relevant, aged receivables and aged creditors (these are customers who owe you money and suppliers to whom you owe money).
Needing funding quickly can be unavoidable. In such circumstances, the price you pay for speed is your interest rate and flexibility.
Where possible, planning ahead allows lenders more time to get to know you and your business, you get more time to assemble the stronger documentation they want, and you’ll benefit from much lower rates and be able to access benefits such as over-payment options.
If you have an existing funding product, the best time to switch is usually not when base rates change, but when you can demonstrate your business is in a better financial shape than when you first applied.
You should be able to source better rates and terms if you have at least one of the following: more positive EBITDA, a longer filing history with Companies House, a stronger balance sheet, reduced HMRC arrears, no recently returned direct debits, a property purchase, and no use of your overdraft.
Exit fees may come into play, depending on what terms and conditions you signed up to. Even if you do have them, they might be less than the savings you’ll make by switching.
Two barriers to knowing that you have the best rate, term, and T&Cs for your business are firstly the vast number of products and lenders to review and secondly knowing what – sometimes small – changes or additions will improve your options.
If you want a free health check on the finance products your business is using, get in touch.
0203 089 7919
hello@risecap.co.uk
3rd Floor, 86-90 Paul Street, London EC2A 4NE
Risecap helps businesses access business finance, working directly with businesses and their trusted advisors. Risecap typically receives a commission or finder’s fee from lenders which will be clearly outlined. The amount of commission received may vary depending on the product or lender chosen.
0203 089 7919
hello@risecap.co.uk
3rd Floor,
86-90 Paul Street,
London EC2A 4NE
Risecap Ltd Data Protection Number ZA553906. The registered address is 85 Great Portland Street, London, England, W1W 7LT. Risecap is a credit broker and not a lender.
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