The Benefits of Building a Relationship with Your Business Lender
Apr 03, 2023
Maximizing Business Success Through Building Strong Relationships with Lenders in India
As a small business owner, your lender is a crucial partner who can
- Provide capital to grow your business
- Offer valuable advice and guidance
The Power of Strong Lender Relationships: The Advantages
1. Better Loan Terms and Rates:
- Good financials and a history of timely payments can lead to more favourable loan terms and rates.
- Better loan terms and rates can help you save money on interest payments over the life of your business loan.
- These savings can then be reinvested in your business to promote growth and success.
2. Access to More Capital:
- Lenders are willing to lend more money to businesses they trust.
- You increase your chances of securing the capital you need for the expansion and growth of your business.
- If you apply for a business loan, a good relationship with your lender can make the process smoother.
- Your lender is already familiar with your business and financial history, making it easier to evaluate your creditworthiness and offer you a loan for a business that suits your needs.
Read more on Business loans
3. Faster Approval:
- Passing the eligibility for business loans is crucial for small business owners to access financing quickly and efficiently.
- A good relationship with your lender can increase your chances of getting approved for quick business loans.
- Lenders who know and trust your business may have pre-approved loan offers ready for you or will be able to process your application more quickly.
4. Financial Advice and Guidance:
- Your lender can provide valuable financial advice and guidance to help your business grow and succeed.
- You can access their expertise and knowledge to improve your business’s financial performance.
- They can help you develop a financial plan to achieve your goals and identify areas where you can improve.
- This is especially useful when applying for collateral-free business loans as your lender can guide you on eligibility requirements and arrange better term rates, type of tenure, and interest rate.
Read more on Business loan interest rate
5. The DSCR Formula:
- The debt service coverage ratio (DSCR) formula is used by lenders to evaluate your business’s ability to repay its debts.
- Building a strong relationship with your lender can help you learn about the DSCR ratio formula and how it’s calculated.
- DSCR measures the amount of cash flow available to pay your debts relative to the amount of debt you have.
- Understanding your DSCR ratio can help you evaluate your business’s financial health and identify areas for improvement.
- The DSCR calculation is done by dividing your business’s Net Operating Income (NOI) by its total debt service.
- NOI is calculated by subtracting your business’s operating expenses from its revenue in Indian Rupees (INR).
- The total debt service is all your business’s debt payments, including principal and interest.
- A DSCR ratio of 1.25 and above is preferred by lenders, indicating that your business has enough cash flow to cover its debts.
6. Tailored Loan Solutions:
- Building a relationship with your lender can help you get customized loan solutions that meet your specific business needs.
- Lenders can advise on suitable loans like working capital loans, MSME loans, line of credit loans, etc, and structure your loan according to your business requirements.
- This helps you avoid taking on unnecessary debt and ensures that you’re getting the best financing possible.
- With tailored loan solutions, you can focus on growing your business without worrying about the financial burden.
Read more on MSME loans, Small business loans
Debt financing is essential for businesses. Building a strong relationship with your business lender is imperative for your success as an entrepreneur. Treating your lender as your business partner can secure better loan terms and rates, access more capital and get faster approval besides offering valuable financial advice and guidance.
By being transparent about your financial situation, making payments on time, and communicating regularly, you can build a lasting relationship with your lender that will benefit your business for years to come. Remember, your lender is not just a source of capital, but a valuable partner in your business’s success.
Q.1 Why is it important to build a relationship with my lender?
Ans: Building a strong relationship with your lender can help you secure better loan terms, access more capital, and receive faster approval. Additionally, your lender can offer valuable advice and guidance to help your business grow and succeed.
Q. 2 What steps can I take to build a strong relationship with my lender?
Ans: To build a strong relationship with your lender, be transparent and honest about your financial situation and goals. Make sure to communicate regularly and promptly with your lender, and be receptive to their advice and feedback. Show your appreciation for their support by making timely loan payments and being a reliable borrower.
Q. 3 Can a strong relationship with my lender help me in case of financial difficulty?
Ans: Yes, having a strong relationship with your lender can be helpful in case of financial difficulty. If you’re facing cash flow issues or other financial challenges, your lender may be willing to work with you to find a solution that keeps your business afloat. However, it’s important to be proactive in seeking their help and keeping them informed about your situation.
Q. 4 What is the importance of lenders?
Ans: Lenders play a vital role in providing credit to individuals and businesses, which can be used for various purposes such as financing working capital, business expansion, or personal needs like education. By providing credit, lenders enable individuals and businesses to access funds that they may otherwise not have.