Lately, we’ve heard from many customers who have questions about interest rates.
As the economic outlook continues to be uncertain, businesses in the energy, construction, and transportation sectors have especially felt the burden of securing financing in a tightening lending market. And if you’re a small business or an entrepreneur, it can be even more difficult. With no clear end in sight to rate hikes, many business owners want to understand their options.
The truth is that big banks have always been hesitant to offer favourable rates to smaller businesses. Banks are focused on risk, and a new or small business may not satisfy enough of the 5 C’s of credit to get the financing they need quickly or on terms that work for their business cycles. So, if you’re a business waiting around for the “best” interest rate, you could be waiting a long time.
As an independent lender, Essex Lease Financial works differently than a bank. Instead of viewing small businesses as a “risk,” we look at each business individually and make lending decisions based on your character and goals, with a customized plan to ensure you’re set up for success. With over 35 years of experience, we’ve learned that the right financing model is often far more important than the “best” interest rate.
So, we wanted to take a look at five truths about interest rates to keep in mind if you’re searching for a business loan or equipment financing.
1. The Lower the Rate, the Stricter the Terms
Low interest rates tend to come at a cost; far stricter lending terms.
As inflation continues to make everything more expensive, prioritizing a flexible financing plan is strategic. By lowering monthly payments, you free up your cash flow and better position your business to respond to fluctuating costs and stay competitive in the current market.
A low interest rate could actually hurt your business if it comes with strict terms that aren’t matched to your business cycles.
2. Lower Rates = Less Service
Businesses that have a personal relationship with their lending partner fare far better in economic uncertainty. But rock-bottom rates tend to equal rock-bottom service.
We’ve seen time and time again that there is a direct correlation between an interest rate and customer service. If there isn’t the option to tailor anything to suit your business, you can bet the service will be lacking in that lending relationship.
3. Just Because a Rate Looks Low Now, Doesn’t Mean it Will Stay Low
Just because a rate looks low now doesn’t mean it will stay low in the long term. And if there is a sudden jump in interest rates, you could easily find yourself in a difficult spot.
Furthermore, if the terms of a loan don’t match your cash flow, the chances that you could eventually default on the loan significantly increase. And if you’re forced to default on a loan, you can guarantee that you’ll find yourself paying even higher rates next time.
4. Waiting Around for Low Rates Could Mean Missed Opportunities
Lengthy processing times cost businesses real money.
Banks are notoriously slow at approving business loans. In the meantime, you may be carrying debt on your credit card, paying sky-high interest rates in the hopes that if you wait long enough, you’ll eventually get a low rate from a bank. That’s costing you real money.
It’s far more important to work with a lender that offers a tailored solution and the agility to meet your needs as your business evolves. Flexible lending can give your business a competitive edge by allowing you to seize a growth opportunity before your competition does.
5. If Something Sounds Too Good to be True, That’s Because it is
This old maxim also applies to business loans.
Unfortunately, the banking industry has a lot of hidden fees embedded into loan agreements. Payout penalties, application fees, insurance, and late fees can all drive up the cost of that “low” interest rate. So if you’re looking at your loan options, it’s important to keep the bigger picture in mind.
Ultimately, a good loan combines a fair interest rate with the right lending terms and a financial partner that understands your business. Either way, it’s important to know the facts behind the numbers and ensure you consider your options beyond the bank.
For over 35 years, Essex Lease Financial has been thinking like a partner in your business. Our financial experts create custom plans that get you the capital you need quickly and on terms that work the way your business does. We are proud to be the trusted alternative to big banks for Canadian companies from coast to coast.
Get in touch with us today to learn more or get started.