Best Commercial Loan Rates - How to Ensure Success

By: Christopher Carter

Finding the best commercial loan rates for your business is of crucial importance. It's highly unlikely that you will be able to carry on your business without needing a loan for real estate and/or equipment at some time. And even a difference of a fraction of a percentage point can have a big effect on your bottom line.

In order to find the best commercial loan rates, you need to know how commercial loans work. The interest rate is the most important pricing component, but it isn't the only one. You also have to consider other costs including appraisals, environmental surveys if required, credit and background checks etc. All these add up considerably and make it well worth shopping around.

So how do you go about finding the best commercial loan rates for your particular business or project?

* See if you can negotiate with your lender. A lender for a commercial loan typically charges prime rate plus a percentage of the total loan amount. The percentage can range from 0.5 percent to several percentage points, and depends on factors such as the size of your down payment, the location of your property and the risk level of your business. You may be able to negotiate a lower fixed percentage amount for the first few years, even if it becomes a larger variable amount later on when you are better fixed to cope with it.

* Try to maximize your down payment in order to keep your rates down. If you can get it to 30 percent or more of the purchase price, it will have a significant effect on your payments. Although it can be hard to raise this amount of money, the benefit is that it immediately becomes equity in the property. In fact it can be worth using equity in other property that you own, to cross-collateralize.

* If you are just starting out in business, you may find your rates are high initially, because you are seen as more of a risk. However, once you have built up a track record, you should be able to refinance with a different lender at much more favorable rates. (If doing this, remember you will still have many of the same fees to pay as with the original loan.)

* Don't forget it is in the lender's interests to make sure you are happy, as they want to keep a long-term relationship with you. If you can't get your rates any lower, see if you can negotiate a reduction of some of the up-front fees, balloon payments or early redemption charges. Lenders may well be flexible on these in order to keep your business.

It is certainly in your interests to try to find the best commercial loan rates, given the cost of a loan and its importance to your profits. The credit crunch won't stop lenders competing for your business - if you can show yourself to be a good credit risk, they will be only too keen to have you as a customer. Just make sure you find the best deal and don't pay more than you have to.

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