I’ve negotiated my share of financing for small ventures and watched countless founders leave money on the table because they treated bank loans as take-it-or-leave-it offers. If you run a small business and plan to borrow, you can influence the terms far more than most people realize. Below I walk through five practical steps I use and recommend to help you secure better rates, clearer covenants, and more flexible repayment terms.

Understand what the bank really cares about

Before you sit down with a lender, I make sure I understand the bank’s perspective. Banks are risk managers, not charity organizations. They want: stable cash flow, clear collateral, experienced management, and a tidy credit history. If you can speak their language, you change the conversation from “Why should we lend to you?” to “How can we structure this loan so both sides win?”

In practice I do the following:

  • Map your cash flow to show when revenue arrives and when expenses hit.
  • List existing debts and assets that could serve as collateral.
  • Prepare a short management biosheet that highlights relevant experience.
  • Run simple stress tests: what happens to debt service if sales drop by 15%?

    • Prepare crisp financials and a focused loan purpose

    One mistake I see is entrepreneurs presenting a foggy plan. Banks hate ambiguity. I assemble a compact loan package that includes a one-page executive summary, 12-24 months of cash-flow projections, up-to-date financial statements, and a clear statement of how the funds will be used.

    Key pieces I include:

  • Profit & loss and balance sheet for the last two years (or since inception).
  • Monthly cash-flow projection for at least 12 months.
  • A specific loan use case: inventory purchase, equipment lease, working capital gap, etc.
  • Backup plan: how I’ll cover repayments if sales underperform.

    • When the purpose is specific and sensible, you can often negotiate a lower margin or a longer amortization because the lender can tie covenants to the intended use.

    Shop deliberately and create competitive tension

    Too many small-business owners approach a single bank and accept the first offer. I always recommend getting at least three proposals. Different lenders price risk differently and offer varied covenant packages: traditional banks (e.g., Barclays, HSBC), challenger banks (e.g., Starling Business, Tide), and specialist lenders or credit unions.

    How I manage the process:

  • Send the same loan package to multiple lenders to allow apples-to-apples comparison.
  • Keep conversations polite but firm—share that you’re comparing offers (without revealing exact numbers initially).
  • Use a better offer as leverage: “Bank A offered X; can you match or improve that?”

    • That competitive tension is often the single most effective lever to improve pricing or secure softer covenants.

    Negotiate the total economics, not just the headline rate

    When lenders quote terms, many entrepreneurs latch onto the interest rate and ignore fees and covenants. I always break down the total cost. A loan with a slightly higher rate but lower arrangement fees, no early repayment penalty, and flexible covenant testing can be materially cheaper and less risky.

    Questions I always ask and negotiate:

  • What are arrangement and facility fees? Are they capitalised or payable upfront?
  • Is there a commitment fee on undrawn amounts?
  • Are there early repayment penalties or prepayment locks?
  • What covenants are required and how are they tested (quarterly, monthly)?
  • What events of default could trigger immediate recall?

    • Pro tip: ask for covenant grace periods (e.g., “two consecutive breaches before default”) or a mechanism to cure minor breaches with a board-level waiver. Small concessions here can eliminate existential risk later.

    Put relationships and documentation to work

    Banking is personal. I’ve found that an existing, positive relationship with a branch manager or director opens doors you can’t quantify. If you don’t have that, build it by keeping accounts active, paying fees, and communicating early when you hit bumps.

    On the documentation side, a clear loan agreement reduces room for interpretation. I insist on plain-language clauses where possible and ask my accountant or a lawyer to review covenant mechanics. If you can, get these specific concessions in writing before signing.

  • Ask for covenant definitions to be objective (e.g., EBITDA calculated by a specified formula).
  • Request a limit on cross-default clauses so a minor breach on another facility won’t automatically jeopardize this loan.
  • Negotiate realistic reporting intervals—monthly may be fine for cash flow lenders; quarterly for term loans.

    • Quick comparison: typical loan term elements

    Element What to watch What I try to secure
    Headline rate Often variable; excludes fees Competitive margin + caps on rate increases
    Arrangement fees Can be 1–3% of facility Lowered, deferred, or rolled into the term
    Early repayment Penalties can be steep No penalty after a short lock-in (6–12 months)
    Covenants Complex definitions can trip you Simple, objective measures with cure periods
    Reporting Monthly vs quarterly Agree to quarterly unless cash flow is volatile

    Finally, be prepared to walk away. The best negotiators know their bottom lines. If a bank’s structure threatens your operational flexibility or requires unrealistic guarantees, it’s better to wait or explore alternatives like equipment finance, invoice financing, or even equity. I’ve used specialist lenders for capital expenditure and saved traditional banks for working capital because matching the product to the purpose often yields the best outcome.

    Negotiation isn’t about aggressive posturing; it’s about preparation, clarity, and creating options. Do that and you’ll find banks much more willing to craft terms that help your business thrive rather than constrict it.