Operating a business is all about encountering ups and downs. Among several challenges, business owners face several financial issues while running their firm. It is especially applicable for those who have just begun a business and do not have sufficient funds to manage the activities, such as business expansion, purchasing new equipment and products, wages payment, starting a new project, and others.
To tackle these circumstances, business owners often borrow money through bridging finance in Australia. Though getting a loan is easy, it is tough to repay it because of loan terms and high-interest rates. As a borrower, you have to understand that the interest rate varies according to a few factors like your current business situation, the loan amount and term, and, most importantly, the lender you select.
Difference between Simple Interest rate and Annual Percentage Interest rate
Lenders usually offer two types of interest rates to the borrowers, and the primary difference lies between these two based on how they are calculated. They are:
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Simple or Total Interest rate
A simple interest rate is a particular fixed percentage of the total amount of the funds you borrow from the lenders. It is easier to calculate as you have to add the percentage amount for every month to the total loan amount. Simple interest rates allow you to make more informed decisions about your funding amount.
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Annual Percentage Interest Rate
Whenever a lender quotes an interest rate on the total loan amount, meaning the interest rate applies to the reducing loan amount. Due to the compounding effect, it becomes difficult for the borrower to calculate the total interest rate for the loan. If the lender calculates your interest rate based on the APR, it will make the entire lending process complex.
Before you apply for 2nd mortgage loan or any other kind of funding alternative, your first objective is to look for a loan that offers the most affordable interest rate. After all, a lower interest rate can save a decent amount of capital that you can use for your firm’s betterment.
But what if you cannot secure a loan for your business with affordable interest? In such cases, you might wonder if there is any other way to reduce the interest rate of bridging finance in Australia or not. There are many ways to get the best interest rate for any loan. To help you with those ways, we have shared a list of the best tips that can help you. So, without further delay, let us delve into them now.
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Do some research
You will find several lenders offering bridging finance in Australia with lower interest rates compared to traditional banks. You only need to do some research by talking with as many lenders as possible. After that, select the best lender who will offer affordable interest and has flexible loan terms and conditions.
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Boost your business profitability
It is one of the primary and beneficial ways of helping you to get an affordable interest rate irrespective of whether you want to borrow money through 2nd mortgage loan or any other loan type. The more profitable your company is, the better your chances of securing a lower interest rate. It is so because the bank or the lending institution you choose will analyze your firm’s financial statements to verify whether you have enough profit history or not. If yes, then how much profit you are currently making. Besides, they also look if you have any debt or not. So, if you have any outstanding debt, you should work on repaying it to get a better interest rate.
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Improve your credit score
Another way to get a better interest rate on an asset finance loan or any other financing is to improve your credit rating. As you might know, credit score plays a pivotal role in loan approval. Similarly, it also has a significant impact on the interest rate. The lenders will look at the credit score to see whether you are creditworthy or not. It means they will evaluate their risk if they lend you money. Besides, they will also look at your credit rating to see whether your firm has a good record of paying creditors or not. Therefore, if you want to get a low-interest rate on your business loan, work on improving your credit score by paying bills on time, reducing unnecessary expenses, and paying off existing debts quickly.
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Provide collateral
Asset or collateral is nothing but valuable things like property to offer to the lenders for 2nd mortgage loan to get a decent amount of money with better interest rate and flexible loan terms. If you provide assets to the lender, they will give you a more affordable rate as they do not have much risk if you fail to repay the loan amount. Therefore, it is another way that will help you to get a better interest rate on any loan.
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Refinance existing debts
Suppose you have already borrowed money from an asset finance loan, and you need to take out another loan for your business. In such cases, refinancing the existing debts is the most effective way to reduce the interest rate.
You can consolidate the outstanding debt into a single loan. Through this, you can get a reduced interest rate as well.
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Pay the loan quickly
The different lenders offer different repayment times. You will get the opportunity to repay the loan based on weeks, months, quarterly, half-yearly or annual terms. But the interest also varies depending on the time you choose. So, if you opt for weekly or monthly repayment, you will get a better interest rate compared to a half-yearly or annual basis.
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Build a strong relationship with the lender
The lenders of business loans often offer the most affordable interest rate to the clients who have been their good clients for several years. If you have enough repayment history and never default on your loan, chances are you will get a better rate on a business loan. So, always try to make a strong relationship with the lender.
Final Verdict
To sum up, irrespective of whether you are applying for an asset finance loan or any other funding, if you consider the above tips, you will secure any loan at an affordable interest rate. So, do follow these tips and save a few dollars.