- Interest Rate: Some business owners are savvy in negotiating interest rates quoted by the banks. Some simply accept whatever is verbally quoted or what’s written on the “term sheet” or on the “loan agreement”. Depending on your risk profile, you might be able to negotiate your business loan interest rate with your banker. For example, a business client with an average risk profile will be likely quoted Prime + 2% or 5% all-in rate for chartered banks on a line of credit. If you negotiate, you might be able to knock off 50 basis points or using the same rate of 5%, why not ask to bring the interest rate down to Prime + 1.5%. You never know what’s in it for you until you try. The larger the loan amount, the more savings you get.
- Personal Guarantees: Banks typically ask for personal guarantee/s from business owners when seeking financing. Unless the loan is borrowed under the government guaranteed Canadian Small Business Loan Program (CSBL) on which personal guarantees cannot exceed 25% of the total loan amount, or the loan is secured by a collateral mortgage on a real estate property or secured by a “hard” security, the amount or percentage of personal guarantees can be reduced, again depending on your company’s risk profile. So if your banker asks for 100% personal guarantee, try asking for 50% and see where it goes.
- Application Fee: Especially for larger transactions of say over $1 million, Chartered Banks will often ask for 50 basis points of Application Fee or Loan Set-Up Fee. Under normal circumstances, nothing is written in stone with your bank or banker. For example, if you borrow $1 million from the bank, your banker will ask for $5,000 or more in application fee. The higher the loan amount, the higher the fee. So why not try and ask you banker to knock off $2,500 or cut the fee in half. Better yet, ask for the fee to be waived or refunded when the deal closes. In most cases, the banker will ask for Application Fee as a commitment that you are serious in getting the loan from his or her bank and not use their “term sheet” to shop around. Again, your banker will grant your request depending on a couple of factors: (1) Your risk profile and more importantly (2) Your relationship with your banker and the perceived value of the level of service he or she provides. If it takes more than 3 days for your banker to reply to your email, I would have serious doubts if he or she deserves to be paid the quoted fees. Put simply, the level of service your banker provides commensurate the level of fees he or she is paid. Responsive bankers who are committed to a high level of customer service and quick turn-around times simply deserve more.
There are more terms and conditions that you can negotiate with your banker. To find out more, you can contact Alma Johns at Bench Capital Advisory Inc. for an absolutely free, no strings attached consultation. She can be reached at firstname.lastname@example.org or (416) 238-2204 or www. benchcapital.ca