post by:
Michael Goldstein
Finance is tricky and many of us would prefer if someone else handled the money so we could focus on our day-to-day responsibilities and plan for growth. Unfortunately, the reality is that we have to wear several hats during the day – manager, warehouse picker, customer service rep, and accountant.
Along with accounting duties is the responsibility of knowing when you need more funding than you currently have available. Negotiating eCommerce business loans does not have to be intimidating. You have more power and value to the lender than they lead you to believe – in other words, you don’t have to just take their first offer. Let’s take a look at these tips for negotiating your eCommerce business loan.
1. Know what you need
If you walk into a bank or a potential investor meeting without the proper knowledge regarding your business, you’re facing a low-ball offer. Investors and lenders look at unpreparedness as a reflection of how you run your company and are less likely to show you competitive offers.
To prepare yourself for the big meeting, start with gathering all of your financial documents: tax returns, expense reports, cash flow analysis. Next, bring your projected revenue analysis and market demand reports. Having these physical articles, reports, and documents show the lender that you are aware of your company’s value. They’re not giving their money away to a lost cause, they are investing in the economy while making a little extra with interest.
2. Know what’s holding you back
In conjunction with our first tip, you have to know what is holding you back from receiving an acceptable offer. Startups and newer businesses may face challenges overcoming credit issues. Not only does a lender look at your credit score, but they may also pull your credit report. Businesses with little-to-no credit history might be dinged because they’ve been unable to prove their creditworthiness. This could lead to higher interest rates or lower lending amounts.
You also have to consider any personal or business debt that might be affecting your credit score. In many cases you can use your personal credit to help boost your chances of getting a business loan, but if you have excessive debt on the business or personal side, it could affect your loan offer the same as your credit score.
3. Understand general loan terminology
The other half of “walking the walk” is “talking the talk.” While we’d prefer to use plain terminology when discussing important topics like finance, that just isn’t the case. We have a few common terms to take a look at, but be sure to do your own research (and don’t hesitate to ask the lender to explain what they mean):
- APR – Annual Percentage Rate (APR) is the cost of the loan, not including interest, based on capital borrowed, fees, and your periodic payments.
- Interest – The percentage you owe on top of the loan. Interest is usually charged and compounded monthly based on the remaining principal balance.
- Secured vs Unsecured loans – Secured loans require collateral while unsecured loans are based solely on credit.
- Grace periods – The period of time before you have to make your first payment. It could also refer to the period of time where you can make a “late” payment without incurring any late fees.
- Term Loan – The type of loan where you make regular payments on specific dates (ex: the 1st of every month) for a specific period of time.
- Collateral – Personal assets that have value that can be used to pay back the loan if you are unable to make the payments/complete the loan.
4. Get it in writing
Gone are the days of a handshake agreement or taking a man at his word. You need to get everything in writing – any offers, interest/APR rates, or term agreements. Taking notes during a business loan negotiation may feel tedious, but it will help you in the long run. Bonus points if they allow you to record the meeting – but be careful with this as there are many laws that forbid you from recording a person that does not want to be recorded.
Save those receipts and notes in case you need to reference them later. In your notes make sure you document down the name, title, and lending agency of who you spoke with, along with how long their offer is available. Don’t return to them empty handed or they’ll think you are a brand new customer.
5. Ask for more
Once you have stated your case and heard their initial offer, feel free to get a sweeter deal. There’s nothing wrong with saying “these interest rates are too high, what can we do about that?” You may have to do some finagling to pay down existing debt or improve your credit score, but asking never hurts your case.
A few other negotiation points to consider:
- Fees – If Lender A offers lower fees than Lender B, ask Lender A if they could provide a more competitive offer.
- Monthly payment – If you want to keep your payments under a certain dollar amount, ask how the lender can accommodate your needs.
- Term limits – Do you want shorter terms to pay less interest, or longer terms to get the lower APR and lower monthly payment?
The lender wants your business, so they will oblige to certain requests. However, if you are not reaching an agreement remember it’s okay to walk away. If the meeting is not going well, if the offer does not meet your needs, or if the terms are not within your budget, walk away and reassess.