How to Negotiate Better Terms on a Business Loan Offer

Most business loan terms are negotiable, but few borrowers try. Lenders expect some negotiation, and a well-prepared borrower can often secure better terms.

This guide shows you what to negotiate and how to do it effectively.

What Is Negotiable

Most loan terms can be discussed:

Build Your Negotiating Position

Strengthen your position before negotiating:

• Get competing offers: Multiple offers create leverage
• Know your credit strength: Strong credit = stronger position
• Understand market rates: Research typical rates for your profile
• Quantify your business value: Prepare data on revenue, growth, history
• Identify relationship value: Long-term banking relationship matters

Negotiating Interest Rate

Strategies for lowering your rate:

• Present competing offers: "Bank B offered me 8.5%, can you match?"
• Point to relationship history: Existing accounts, deposits, previous loans
• Offer additional collateral: More security can justify lower rate
• Consider rate lock timing: Lock when rates are favorable
• Ask about rate discounts: Auto-pay, account linking, larger deposits

Negotiating Fees

Many fees can be reduced or waived:

• Origination fees: Ask for reduction or credit toward closing costs
• Document preparation fees: Often pure profit margin for lender
• Application fees: May be waived for strong applicants
• Monthly service fees: Sometimes negotiable or waivable
• Early payoff fees: Ask to cap or eliminate prepayment penalties

Fee negotiation example:

Negotiating Prepayment Terms

Prepayment flexibility is often worth negotiating:

• Ask for no prepayment penalty: Especially for shorter-term loans
• Request declining penalty: 3% year 1, 2% year 2, 1% year 3, none after
• Negotiate penalty cap: Limit to X months of interest
• Get partial prepayment rights: Pay down 20% per year without penalty

Negotiating Personal Guarantee

Personal guarantees are sometimes flexible:

• Partial guarantee: Limit to percentage of loan balance
• Time-limited guarantee: Guarantee expires after X years of good payment
• Capped guarantee: Limit guarantee to specific dollar amount
• Spousal exclusion: Keep spouse off guarantee if possible
• Carve-out guarantee: Only guarantee specific "bad acts" not full repayment

Negotiation Tactics

Effective approaches:

• Be professional and prepared: Come with data, not just requests
• Focus on total value: "What can you do on the overall package?"
• Give to get: Offer something in return (larger deposit, faster close)
• Be willing to walk away: Politeness with backbone
• Ask for the decision maker: Loan officers have limited authority
• Time it right: End of quarter/month when lenders need to close deals

What Is Usually Not Negotiable

Some terms are fixed:

• SBA guarantee fee: Set by SBA, lenders cannot waive
• Minimum credit requirements: Lender policy, not discretionary
• Maximum loan amounts: Based on underwriting formulas
• Third-party fees: Appraisals, title insurance, credit reports
• Regulatory requirements: Documentation, disclosures, waiting periods

Sample Negotiation Script

"Thank you for this offer. I am seriously considering it, but I have a few concerns. First, the origination fee of 2.5% seems high compared to other offers I have received. Second, the prepayment penalty limits my flexibility. I would like to proceed if we can reduce the origination fee to 1.5% and eliminate the prepayment penalty after year two. Is there flexibility on these terms?"