Managing a business loan isn’t as nerve-wracking as the tedious process of applying for a business loan. You’re in control as long as you make payments within the schedule agreed on with your lender.
The repayment period, in most cases, starts the month after you receive a loan. The number of payments depends on the loan type plus the amount borrowed. You’ll have an easier time when it’s only one loan. So, how do you ensure your payments are on track?
How to Keep Up With Your Business Loan Repayment
Before you even start looking for ways to manage your loans, it’s wise to separate personal and business funds. That way, you won’t risk overspending business money on personal expenses. Also, you won’t use private funds in your business and require a personal loan to survive. Once you have that under control,
Assess Your Business Finances
An honest financial assessment will show you how much money you have to run the business. You ought to have done this before getting a loan, but since your finances may have changed, it’s also wise to do a financial assessment now. List all the costs you meet for your business, from insurance to permits and taxes.
Increase Repayments During the High Season
Make more or higher payments when your business is doing well to cover up for the times you’re unprofitable. If your lender doesn’t offer such a flexible schedule, find a way to set aside the money for loan repayments during the profitable months.
It could go into a business emergency fund to cater to such expenses during the low season. You can automate transfers from your business account to a fixed deposit or another account type suitable for an emergency fund.
Get Loan Refinancing
A refinancing balance transfer gets you a new loan with different terms to replace the existing obligations. It’s a suitable debt management solution when you feel the repayment amount is too high or some other aspects of the first loan might affect your repayment plan. Plus, there might be better repayment deals now than when you took the loan.
However, consider this option if you have many monthly repayments, not just one or two months to clear your loan.
Establish A Cash Flow Management System
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A loan is an added expense that requires you to start controlling your expenditure so that you have money to clear it. Hence, your cash flow management system will show you receivables and payables to see how much you can spend on loans.
It’s more efficient when using accounting software or apps instead of depending on your memory to remember all business purchases and expenses. You also see where you can cut back on business expenses to avoid missing out on payments.
Compare Forecasts to the Current Situation
Forecasts are guesses about the future, but the business environment may not always stick to these forecasts. Therefore, it’s better to evaluate the present situation often to see how your revenue may have increased or decreased against expenses. It gives you time to take action before the repayment period lapses.
Avoid more Debts
A business loan should boost business growth and profits. But sometimes, when you can’t repay it on time, you get deeper into debt to afford monthly repayments. When that happens, consider cost-cutting first before taking another loan.
You can also halt any expansion or other costly plans so that you focus on revenue generation from the existing market. Doing this will also cushion your credit score.
Search for more opportunities to double your revenue, whether by expanding your geographical reach or new customer acquisition in the existing markets. You can also consider new technologies that boost efficiency and lower operating costs.
On top of that, you can change your purchasing strategies to rely more on bulk purchases when getting raw materials and business supplies. Such plans will increase your income to have more money to repay debts and loans.
Talk to Your Lender Upfront
Your business forecasts will predict the likely financial situation months before you default on loan repayment. Therefore, be honest with your lender before things get out of control. Your financier might even listen when you renegotiate terms.
Businesses need funds to grow. That’s why you may consider getting loans. The issue arises when your business makes less than what you owe different lenders. As such, come up with a solution before it gets out of hand and affects your credit score.
For example, you can refinance your loans to consolidate them by getting a new amount and terms. Another option is a cash flow management system that shows your income against loans, so you can focus on where to make cuts or how to boost revenue.