5 Tips For Negotiating A Better Rate On Your Commercial Construction Loan

Commercial construction of any kind can be costly. If you are like most business owners, you plan to take out a loan to afford the cost of construction and then pay it back over time. This is certainly easier than trying to come up with the cash to build up-front! One challenge you will face, however, is getting a good rate on your commercial loan. It's silly to overpay, but most times, you will have to do some negotiation to get a good loan rate. Here are six tips to help you in that negotiation process.

1. Apply for loans through a variety of vendors.

There are really four different types of banks that lend to commercial businesses. There are big, national and international banks, local banks, credit unions, and online banks. Which type of bank offers you the best interest rate will really depend on the nature of your business and your unique credit situation. For example, an online bank may offer the best rates for businesses who have been around for 10 years, but a national bank may offer the best rates for new businesses. Since these banks weigh many factors, the best way to know who will offer you the best rate is just to send in lots of applications. Apply to at least one bank in each of these four categories.

2. Have your paperwork in order.

When applying for loans, make sure you have all of your paperwork in order. And go above and beyond what is actually required to apply for the loan. Accumulate paperwork that shows your subcontractors and what you pay them, the payoff records for any other loans you have taken out, tax records for the last few years, and even some testimonials for clients. There's really no such thing as including too much information when applying for a loan. The lender will either look at it and give you a better rate, or they just won't bother.

3. When possible, meet with the lender in person.

Obviously, this is not possible when applying at an online bank, but it does work for all other types of lenders. Rather than just applying on paper, actually visit the bank and sit down with someone in person. It's a somewhat unfortunate reality that appearances mean a lot in the business world. If you come off as poised and responsible, the bank may offer you a better rate on the loan. Meeting in person also makes following tip easier!

4. Ask for a better rate.

When the lender presents you with the rate they are offering, it does not hurt to ask if they can do a bit better. The worst they can say is "no." For example, if they offer you a construction loan of $100,000 at 4.5%, you can ask, "would you be willing to offer a rate of 4.2% if I only borrow $95,000?" If they lend you a little less, they can often offer a better rate because they are at less risk. You just have to find a way to make up the difference—from savings or an emergency fund.

5. Bring up other offers.

After you have already received an offer or two, make sure you bring up those offers when visiting subsequent banks. For example, when applying at the second bank on your list, you can tell them that you've already applied at Bank A, and they offered you a rate of X.XX%. This motivates the bank to give you a better rate so that you choose them over Bank A. 

Negotiating a better commercial construction loan rate is easier than you think with the tips above! Remember to apply to several banks, have your paperwork handy, and be willing to have in-person discussions during which you request a better rate. For more information, reach out to lenders like LCNB National Bank.