You’ve managed to get yourself a business loan. Go you!
You may have thought that was the hard bit but what about the paying back part?
Ah yes, that.
That little part that you probably weren’t thinking about too much at the time of getting your business loan.
STOP that thought trail right there.
Paying back your business loan doesn’t have to be a nightmare.
Armed with a business repayment plan you can much more easily manage business repayments – trust us, it’s a doddle.
Here, we’ll take you through how to best manage your business repayments and better yet, remain financially stable in the process. Allow us to help you relieve that tension…
How to manage your loan repayments
There are many things you can do to help manage business repayments and make sure your loan is being used and paid pack effectively. Here, we’ll take you through our top tips!
1. Time for an honest financial assessment
It doesn’t matter what industry you’re in, every business needs a budget. And there’s no way you can figure that out without knowing your company’s financials inside out.
Deep-dive into your company and make a very honest financial assessment of the business. Figure out your working capital needs and make sure that you aren’t spending your loan outside of the business’s means.
Knowing your company’s budget will also help when deciding how big of a loan to take out in the first place. Resist the temptation to take out far more than you need – it may seem manageable now, but payments build up and could spiral out of control. With a carefully planned budget, there is no need to take more than you need.
2. Manage your cash flow
Cash flow management directly ties in with your budget. After all, how do you expect to respond to cash shortages if you don’t know your cash flow?
Top tip: Make sure you’re using reliable software such as Quickbooks to monitor the cash flowing in and out of your business.
You certainly don’t want to end up like PPL Plaza who missed a $67 million balloon payment on a property loan leading the loan into a default. That’s a hard enough pill for a large company to swallow let alone a startup! Luckily, they were on good terms with their lender and were able to renegotiate the terms to avoid a default.
Make sure to never miss a payment to a lender. If you’re struggling, try to minimize your expenditures where possible to cut your cash outflows.
Minimize expenditure by:
- Postponing non-critical purchases
- Slowing down on inventory restocking
- Considering freelancers as opposed to full-time employees you can’t afford
3. Separate business finance from personal finances
You may be thinking, blah blah blah ‘I’ve heard this all before’. But, did you know that by separating your business finance from your personal finances, not only will you reduce your financial headache but you’ll also be able to protect your personal assets?
If you ever got to the stage of business loan disputes – a place no one wants to be – your personal assets will be shielded from financial examination by banks, accountants and even the IRS. So make sure you don’t make sure your avoiding common business banking mistakes, to keep your personal assets off the line.
4. Pay more in the busy season
Most businesses will go through times when their business is doing well, and other times when things are moving slightly slower. If you’re in a busy period, you could look to pay down your debt with more than the minimum repayments. Or, you may decide it’s best to put that extra cash to the side and save it for a rainy day – that way, you won’t miss any repayments when the season is moving at snails-pace.
Whether or not you decide to pay more in the busy season will depend on your goal. If your goal is to be debt-free, then why not attack the payments head on while you can?
Tip: Shopping around for small business loans is actually better when times are good. If you’re making money and sales are up, and better yet, you’ve got a good credit score, then lenders will be kissing your feet. You may find that you can get your business loan elsewhere at a more competitive rate. It’s worth a hunt around. Lending Express is a great place to start, with one application alone, you’ll have access to over 40 of its lending partners who will be competing for you (not the other way around).
5. Make friends with your lender
Having a good relationship with your lender will put you in a better position to negotiate a better repayment plan should you ever need to. Lenders have hearts too, they may be a tinge greener than you or I’s but if you maintain contact and forge a good relationship with them, you’ll immediately be in their good books.
If you get yourself into a sticky situation, it’s very important to communicate your difficulties with your lender before you start missing payments.
Lenders may consider your circumstance and make you a specific tailored repayment plan which could involve:
- Extending your loan
- Reducing interest rates
- A debt settlement
- Reducing repayments below the minimum you currently have (short-term)
- A delay of payments (again, short-term)
6. Keep your credit score strong
Easier said than done but seriously, don’t neglect your credit score just because you have your business funds in hand. Keeping an eye on your score and making sure that your credit remains healthy will put you in a better position to negotiate any debts you may collect with your lender. You may even be able to pay off the loan faster or reduce the minimum payments.
7. Know when to refinance
If you’re carrying multiple short-term loans (especially those with high interest rates), you’ll know that payments can add up and become an overwhelming expense. If you’ve been able to improve your financial standing, you may be eligible for a better form of financing. At this point, it could be worth considering refinancing or consolidating multiple business loans into a single, and far more manageable solution.
What are loan repayments?
For those wondering what loan repayments actually means…Loan repayments are made in order to pay back money borrowed from a lender – in this case, the trusty lender providing you with your business loan. Repayments typically include interest, and for anyone who hasn’t been able to keep up with their payments, they’ll face a black mark or two on their credit report.
How does not making loan repayments affect your credit score?
Those black marks that appear on your credit report when you can’t pay back your loan repayment on time can do great harm to your credit score and make lenders see you less favorably as you will be deemed ‘more risky’.
A payment more than 30 days late may see your creditor reporting it to the credit reporting agencies (CRAs). Generally speaking, the longer the payment goes unpaid, the more harmful the effect will be on your credit score. On top of that, the more recent the late payment, the more negative the impact can be. The amount your credit score drops will depend on many factors including the agency and how high your score was before.
2 examples of score changes according to FICO data:
- A 30-day late payment got someone with a FICO score of 780 (and never missed a payment) could cause as much as a 90-110 point drop.
- Someone with a FICO score of 680 with two late payments (in this example, one from two years prior and one from a year prior) would experience a 60-80 point drop after being hit with another 30-day late payment.
Good to know: A late payment could stay on your credit report for up to 7 years!
What to do if you made a late payment:
- Make a budget
- Use automatic payments
- Stay current with all your other accounts
- Call your creditors and figure out a payment plan together
- Monitor your credit report
- Learn to manage your repayments – re-read the list above!
Hope you found this useful!