The biggest mistake a small business owner can make when they are working with a bank is to think that the terms the bank presents are non-negotiable. The truth is that you can and should ask for a better interest rate or other more favorable credit terms. However, small business owners who are not used to negotiating these important financial arrangements often make mistakes.
Here are the common mistakes you need to avoid in order to get the best terms when negotiating credit with a bank.
1. Avoid Being Intimidated
It can feel daunting to negotiate with such
a large organization, and one that has so much power over the future of your
business. But remember that there is more than one bank out there and the
others want your business too. There is no reason to be intimidated by the bank
or the people you speak to there. The person negotiating for the bank is not
all-powerful and is a person, just like you.
2. Do Your Homework
Why do you deserve better terms? Just
wanting them will not be a compelling enough reason. You should demonstrate the
reasons that your business is more likely than average to pay back your loans
or to be a good customer to the bank over the long term. Arrive to the meeting
aware of all the information that may be important to bring up. Discuss your
credit rating, the future prospects of your business, or the kind of investment
you’re making with the credit the bank is offering you, if any of those facts
would be compelling.
Whatever your argument, preparing it ahead
of time will give you the opportunity to pull the numbers and make it more appealing
to the bank’s representative.
3. Listen to Build Trust
The bank will have its own reasons that the
initial terms they offered you are acceptable. By listening to the
representative’s counter arguments and perspective you gain valuable insight
about which terms the bank might be more open to negotiating and what they
would need to see in order to offer you better terms where they currently
cannot.
Perhaps the bank is inflexible on the
interest rate, but more flexible on monthly payments or overall credit amount.
By listening you can find opportunities. You’ll also build more trust with the
bank’s representative, who will realize that you understand their perspective
and will therefore be more willing to work with you.
4. Know What's Good Enough
It’s rare in any negotiation to get
precisely what you ask for. You’ll walk into the negotiation knowing what you
want, but you should also know where to settle. What terms would be good enough
to get your business the credit it needs? When you know the bare minimum you’d
be willing to accept you will know when you should walk away and pursue other
options.
If the negotiation doesn't go well, keep in
mind that you have other financial options available to your business.
Invoicing factoring is a great option, particularly if your negotiations with
the bank don’t fare well. Reach out to J D Factors to learn more about this alternative
option.
