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In the past year, the huge profits of banks have caused a lot of tension in society. Estonian banks take money from depositors at a bargain price and borrow it out at an expensive price. The result is huge profits for banks. This is largely due to many different factors, but there is a lot we could also do on our part to make conditions better.
The involvement of loan money is often necessary in the long term at some point for both private and corporate clients. Although the process may seem complicated and time-consuming at first glance, it is possible to achieve more favorable conditions if you are aware and prepared. In this article, we will outline the main strategies on how to get better loan conditions from banks and what you should keep in mind when negotiating and concluding contracts. We will also share practical advice on how to communicate with the bank and what details it is worth being especially attentive to in order to avoid unexpected additional costs in the future.
Banks to compete
One way in which it is possible to trade off on more favorable terms for yourself is to make banks compete with each other. It is important to know that, traditionally, at the first time, no bank, including a home bank, will come to offer you its best conditions. It is worth reserving some time for negotiations with banks, if possible. This is not always possible, as it is often a hurry in business, but if possible, take the time so that you do not have to make a decision in a hurry. After receiving initial offers from all banks, start negotiating with banks again. Since you have a clear picture of what someone is willing to offer after the initial offers, then you will be in a better position to renegotiate.
Find out if the other party is willing to offer better terms and what their best offer is. If, for example, you have received a worse offer from a home bank than from a competitor, then it is worth mentioning that at the moment, unfortunately, your offer is not the best and find out what options are available for better conditions. Chatting with different banks for several rounds in this form is completely normal and will create better chances for you for more favorable terms. In doing so, it is extremely important to maintain a polite tone and not to take a bad offer from a bank personally. It is worth considering that opposite you are managers who deal with such negotiations on a daily basis and who possess excellent skills to influence you to the maximum advantage possible. The task of managers is to give you a loan as expensive as possible and produce the maximum profit for the bank.
Big picture
When choosing the best solution for yourself, it is extremely important to take into account the whole. Especially with business loans, it is not only the margin and the contract fee that is worth keeping track of, but also the covenants and special conditions that go into the contract play a very important role. These conditions can ultimately have a significant impact on your loan cost in various business situations, and unfavorable conditions for you can lead to a significantly higher loan cost. A very important point, which often people do not notice in the daze of borrowing, is that banks put a condition in the contract related to the early repayment of the loan. As a rule, it is not possible to immediately repay the loan without additional charge. However, this is a condition that can be negotiated with banks and it is worth paying attention to before concluding a contract. It is also important what is the level of communication and speed on the part of the bank. In business, capital is often needed quickly for good deals, so it is very important that the bank you choose to partner with is a strong and flexible partner over the long term.
Enter the bank correctly
Getting a loan and its conditions depend in many ways on your first step to the bank: it is important that before contacting the bank, your documents are in order and the plans are clear and specific. It is important for the bank to understand for what purpose the loan is wanted and what the specific plan of your business is. Before contacting the bank, tidy up or have the accountant sort out the documents to be submitted. It is also important to understand the content of the documents to be submitted, as well as the ability to explain the content of the documents to the representative of the bank, if necessary. If there are errors in the documentation, then in the eyes of the bank your risks may increase somewhat, which in turn will affect the conditions offered to you.
Applying for a loan may seem like a complicated and time-consuming process, but if you follow a few simple steps, it can be smoother and more effective.
1. Plan and prepare in advance: Before applying, prepare a detailed business plan or financial plan that clearly shows how you plan to use the loan and how you will be able to repay it.
2. Collect the necessary documents: Possible documents include proof of income, tax returns, and an overview of existing liabilities. In the case of companies, a balance sheet and an income statement are definitely necessary.
3. Submit a request: Submit an application with all necessary documents. Be prepared to answer additional questions and explain your plan.
4. Check out the different loan offers: Find out the offers and loan conditions of various banks and financial institutions. Compare interest rates, contract fees and other terms.
5. Negotiations: After receiving the initial offers, start negotiations to get the best conditions. Be prepared to negotiate with several banks.
6. Final decision and signing of the contract: Choose the best offer and sign the contract. Before signing, carefully read all the conditions.
Loan agreements often contain a number of conditions, all of which may not stand out at first glance. It is important to understand and consider:
Interest rate: This is the amount you pay for using borrowed money. It can be fixed or variable.
Contract fee: A one-time fee that accompanies the conclusion of a loan agreement.
Special conditions: These may include various restrictions and obligations related to the loan, such as holding a certain cash flow, restrictions on taking on additional obligations, or changing the owners associated with the business.
Terms of early return: It is important to know whether and under what conditions the loan can be repaid early.
After receiving a loan, it is important to monitor your financial condition and ensure that you are able to repay the loan on time. A few tips:
1. Make regular payments: Follow the payment schedule and make payments on time to avoid late penalties and negative impact on your credit score.
2. Track cash flow: Keep an eye on your business or personal cash flow to ensure you have enough income to cover loan payments.
3. Look for refinancing options: If market conditions change significantly, refinancing can help get a lower interest rate and better conditions.
How to compare loan offers from different banks?Compare interest rates, contract fees and other terms. Read all offers carefully and, if necessary, ask for additional information.
Can the loan agreement be changed after signing?After signing, changing the loan agreement is more difficult, but possible. This usually requires the consent of the bank and generally comes with additional fees.
What is early return?Early repayment means repayment of the loan before the expiration of the contract. Its terms may vary and usually come with additional fees.
Is it possible to get a loan without collateral?Yes, some banks offer loans without collateral, but their interest rates are generally higher and the conditions are stricter.
What to do if you can not repay the loan?If you have difficulty repaying the loan, contact the bank immediately.
Getting a loan from a bank requires thorough preparation and a strategic approach. Competition between banks can lead to better lending conditions, but for this it is important to set aside time for negotiations and comparison of offers. In addition to the low interest rate, attention should be paid to the special conditions included in the contracts, which can significantly affect the total cost of the loan. Properly prepared documents and a clear plan will give you a better position in the negotiations. All in all, an informed and strategic approach will help ensure more favorable and flexible loan conditions that support your financial goals.
If you would like further advice or assistance in applying for a loan, please connect with us.