Loans and transfers - don't pay more than you need to

By: Jamshaid Choudhary

Date: 11 March 2019

A business owner saves money and puts coins away in a jar while calculating the best loan rates.When launching a new business, owners often need to take out loans. Borrowing from the bank to get your business off the ground isn't necessarily a bad thing - but it is well worth searching out the best offers and regularly checking whether the market has anything better to offer.

Reducing the cost of corporate credit is one way, but not the only way, to optimise profit. There is also money to be saved when paying for goods or services in countries that use currencies other than the pound.

Here we look at how to reduce unnecessary costs when taking out a loan or carrying out an international money transfer.

Loans - do your due diligence

It is often said that bank loans are taken out quickly, but paid off slowly. It is worthwhile, though, to be the exception to this rule and put in some careful preparation work when you're looking for a business loan.

Loyalty should not act as a guide when choosing the best lender. The bank where you have your business current account won't necessarily offer the most advantageous deal on loans.

You should carry out detailed research to choose the best deal for you - paying attention to commission, fees and the annual percentage rate. Get advice from a financial adviser if necessary.

Even if you're able to, it is not worth borrowing more money than you really need. Before plunging in, carefully calculate how much finance you actually need. Borrowing money from a bank in excess of your requirements is a bad idea, because later on every penny will need to be repaid with interest.

Long-term or short-term borrowing?

Spreading your loan repayments over the maximum term may seem appealing at first, due to the relatively small instalment amount. In reality, of course, the longer you take to repay your loan, the more interest accrues.

Therefore, loans that are taken out for the shortest possible period, with the minimum number of instalments, work out to be the least expensive in the long run.

Of course, there are exceptions to this rule. Sometimes your financial forecasts will show that long-term loan repayment is the only option. At that point, you have to accept the fact that you will probably pay back much more than you borrow.

However, during the contract period, your financial capabilities may change significantly. If you find yourself able to repay your loan sooner than you expected, it is worth making efforts to renegotiate the terms of the credit agreement.

Replacing an expensive loan with a cheaper one may also be a way to reduce costs. A competing bank may be able to offer you better rates. In practice, this means paying off an "old" loan with a "new" one, and then paying your instalments on more favourable terms.

Be sure you understand how any early repayment fees or other costs will affect the overall amount you will be liable for.

Save on international money transfers

Regardless of whether your business regularly works with overseas suppliers or buyers, or whether you only occasionally make international bank transfers, bank commission and exchange rates can expose your business to unnecessary costs.

It is important to know that foreign bank transfers, especially when currency conversion is involved, can be surprisingly expensive. Commission and fees can amount to a high percentage of the transfer value.

This happens because not all banks have foreign currency accounts with each other, so need to use intermediary banks. The costs, which a customer may not be aware of at the beginning of the transaction, increase as the chain of transfers becomes longer. Banks may also impose a less than favourable exchange rate on the transaction.

Avoid the trap of expensive money transfers by using a third-party company that provides cheap international money transfers, such as Conotoxia.

Sponsored post. Copyright © 2018 Jamshaid Choudhary, professional blogger, industry watcher and technical writer