Whether you’re expanding a business or upgrading your equipment, there’s one thing that you’ll need above anything else: working capital. As the saying goes, you need to spend money to make money, but you may not have the liquid cash for larger business-related expenses just lying around. That’s where a small business loan can come into play.
Loan programs can give you access to more working capital than you might have had with personal funds or revenue alone. But you’ll need to repay that debt and the interest it accrues. That can make small business loan repayment challenging for many business owners, but considering the following tips may help make it easier.
Paying off debts is essential for your company’s financial health. Consistently making your monthly payments may show prospective lenders that you’re a reliable borrower, making them more likely to approve you for loans with lower rates and longer terms in the future. On the other hand, failing to repay a loan is often a black mark on your financial history that may keep traditional business lenders from funding your business.
Thankfully, keeping to a payment schedule doesn’t have to be insurmountable. Some simple information-gathering and planning can go a long way.
The loan application process will introduce you to many financial terms you might not know. Understanding these terms can tell you exactly what you’re getting into when you sign a loan agreement. While the list below won’t cover every possible loan detail, these are likely some of the most common things you’ll see:
If you know you’ll have trouble repaying the loan, contact your lender as soon as possible to seek alternative options. Most lenders prefer consistent payments over having to hunt down their money. While it’s not a sure thing, your provider might be willing to make a different arrangement with you in the case of financial difficulties.
A very easy way to avoid missing payments on your small business loans is to sign up for automatic payments. That way, the lender deducts the necessary funds from your bank account without you having to remember to do it yourself. However, it’s important to keep track of your autopay in case your cash flow leaves insufficient funds in your account. Catch this early so your bank doesn’t charge you overdraft fees.
Unforeseen circumstances could mean that you miss a payment period. In that situation, it’s important to review your lender's late policies so you know what options are available to you. Every financial institution handles late payments differently, so make sure to do the necessary research in advance so you aren’t blindsided by hefty late fees.
If you’re struggling to repay your loan, you may be able to get better terms and conditions. Refinancing a loan essentially means transferring the debt to another lender and following the terms and conditions they set for your repayment.
Generally, small business owners refinance loans to lower their monthly payments or get lower interest rates. However, some simply want to “graduate” to better loan terms after their company has grown. For the latter, most businesses try to qualify for an SBA 7(a) loan. You can use these loans for debt refinancing, and they’re renowned for their long repayment terms, lower interest rates, and larger loan amounts.
Knowing how much money comes into your business per month – and how much goes out – is vital for repaying your debt. A careful eye on your month-to-month revenue can help you anticipate financial trouble before you feel the effects. This way, you can take precautions if your cash flow gets so tight you’re worried you can’t repay your loan. Act sooner than later, and your lender might be more lenient about late fees and or other penalties.
Making a budget can help you track what goes into and comes out of your account - and when. Having that knowledge available at a glance can give you more control over your finances and make you less likely to overdraw your account.
Repayment tips alone won’t make you immune to financial troubles. Sometimes, a business can run into hardship through no fault of your own. While challenging, there are things you can do to help keep your business through it, including:
Repayment is part of borrowing money, but some loan repayment plans will fit your financial situation better than others. Finding a lender with repayment terms that suit your business can be time-consuming, but SmartBiz can help with its one-to-many application aimed at connecting you with the right capital at the right time. Check now whether you pre-qualify* for loans that may help fund your growth now and lead to easier repayment in the long run.