Business Loans Get More Expensive: 3 Ways to Borrow More Effectively and Cheaper

As interest rate environments become more sensitive, businesses must carefully evaluate the true cost of financing, according to Julius Ivaška, Director of Business Services at Urbo Bank. Even small differences in interest rates or the ability to reclaim some costs can significantly impact a company's budget. Ivaška advises that a clear loan purpose, organized documentation, and well-founded calculations are key to increasing the likelihood of securing financing and can lead to more efficient and cheaper borrowing.

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When the interest rate environment becomes more sensitive, it is important for companies to assess the true cost of financing. Even a small difference in interest rates or the possibility of reclaiming part of them can significantly affect the company's budget, and a clear loan purpose, tidy documents, and justified calculations can increase the likelihood of obtaining financing. It is also worth checking state-subsidized financial instruments before borrowing.

Ivaška notes that many loan applications are not approved on the first attempt, often requiring additional clarifications or documents. To avoid lengthy delays, businesses should prepare thoroughly. He emphasizes three essential steps for smoother financing processes: ensuring financial data is up-to-date with not only previous years' reports but also the latest interim results. This provides a current snapshot of the business's financial health, including revenue stability, existing obligations, and seasonality.

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Many companies' loan applications are not approved on the first try, often requiring additional clarifications or documents, so it is important to know in advance how to prepare properly so that the financing process does not drag on.

Furthermore, clearly defining the loan's purpose is critical. Vague explanations like funding for "expansion" or "working capital" are often insufficient. Banks need specific details on the amount, its intended use, the expected outcome, and the projected revenue streams for repayment. Ivaška suggests calculating multiple scenarios, considering slower sales growth, rising raw material costs, or delayed client payments, to demonstrate risk awareness and management preparedness.

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First of all, it is worth tidying up financial data – having not only previous years' reports but also the latest interim results. They show the current state of business: whether revenues are stable, what the obligations are, whether the activity depends on seasonality, a few large clients or suppliers.

For small and medium-sized enterprises, especially those with limited operating history or collateral, securing financing can be challenging. However, Ivaška points out that business potential extends beyond numbers, encompassing order portfolios, team experience, customer bases, and long-term contracts. He encourages businesses to persist if they receive a negative response, as different financial institutions assess risk uniquely. Smaller banks, in particular, may offer more individualized evaluations, recognizing factors like stable revenue growth or clear expansion plans even without an extensive credit history.

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It is no less important to clearly state why the loan is needed. A general explanation that financing will be used for 'expansion' or 'working capital' is often not enough. According to Ivaška, the bank needs to see the specific amount, its use, the expected result, and from which revenues the loan will be repaid.