Moving your deposits and other banking services to the lender are a couple of the best ways to reduce your loan pricing. Read below for the rest of the tips.
When I was the SVP of Finance at a financial institution, I approved pricing for all business loans over $1 million with fixed rates greater than five years. I looked for the factor below to justify giving borrowers low rates.
1. Move deposits and other services to the lender
Other services you have at the bank, especially your deposits, are very valuable. The stock price of a bank is driven more by their deposit base than any other factor, even more than loans. It never hurts to ask if the lender will lower their rate if you move more deposits to them or use more services.
2. Reduce the length of the loan terms
Asking for a shorter repricing term, balloon term, or amortization term should reduce the interest rate on your loan. On the other hand, don’t reduce the amortization period so much that it jeopardizes your current cash flow.
3. Trade off the costs of fees and interest
There are three major loan costs that you can negotiate: the origination fee, the interest rate, and the prepayment fee. If you expect to pay off the loan soon, you can reduce the origination fee by accepting a higher interest rate. It may save you in the long run. Don’t forget the cost of prepayment fees. If you are likely to pay off the loan soon, either through your cash flow or by the sale of the asset, make sure the prepayment fee can be waived under certain conditions or isn’t too expensive.
4. Refinance other loans with the lender
Like moving deposits, you can also reduce the loan cost by refinancing loans at other banks with the lender you are now approaching. If you are trying to get a commercial real estate loan, they would be very interested in your operating line of credit.
5. Move your personal accounts to the lender
Your business accounts aren’t the only accounts you can move to reduce your loan costs. Moving your personal accounts also increases your overall customer profitability to the bank, which gives your loan officer greater flexibility in reducing your loan cost.
6. Improve your financial health
Improving your financial health isn’t something you can do overnight but over time it will reduce your pricing. The financially stronger you are, the less risky you are, which means you get better pricing.
7. Refer customers to the lender
I wish I had a dollar for every time a loan officer justified low pricing on a loan by saying “the customer is a great referral source.” Actually referring customers to the lender can improve your chances of lower pricing and makes the pleas of the officer more believable.
I wish you the financial strength and knowledge to get the best rates you can get. I wish you well.
- Rob Stephens
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