For example, they utilize financing to purchase equipment, pay for marketing materials, meet payroll, in addition to affording other costs. Having additional business finances can be beneficial, but it’s vital that you follow your loan repayment schedule.
When it comes to repaying a business loan, there’s more at stake than having your personal or business credit score suffer. If you fail to repay your term loan, you may lose access to future capital (such as other loans or credit cards), which could be detrimental to your business.
In addition, you could face legal problems that would damage your business’s reputation. This represents an extreme scenario; but it’s important to make repaying your business loan a priority.
In this post, we’ll explain how you can responsibly pay off your small business loan, so that you can guarantee your business’s future!
What Are the Six Steps You Should Take to Pay Off a Business Loan?
1. Understand the Loan Terms
When applying for a business loan, make sure that you fully understand what your obligations are. You should know what your loan term is, including payment due dates, whether interest will fluctuate, payoff amounts, prepayment fees, and other aspects of your business loan. If you’re confused, ask your lender to further explain this information!
If you received a different type of financing, such as a business line of credit, merchant cash advance, or Small Business Administration (SBA) loan, your repayment plan may vary. Again, contact the financing provider to ensure you’re fully aware of all details.
2. When in Trouble, Seek Help Immediately
If you’re unable to make loan payments due to cash flow problems or other issues, contact your lender immediately. If you start missing deadlines without providing an explanation, there could be serious repercussions.
In some cases, a business loan provider may be able to temporarily suspend payments, offer refinancing options, or briefly accept a reduced amount. You’ll still be required to pay your remaining balance, but the previously mentioned options could relieve some financial stress.
3. Set Up Autopay or Choose a “Payment Date”
Many business loan providers allow their customers to set up automatic payments, instead of manually submitting their monthly payment themselves. This way, you won’t have to worry about forgetting to make a payment.
Another option is to choose a day to make all your payments at once. For instance, if you have loan payments and other bills due around the same time, you can choose a specific day each week or month to make these payments.
4. Consider Refinancing Options
If your interest rates are too high, it could be possible to reduce them by refinancing your loan. In some cases, you may be able to secure better interest and loan terms. This will allow you to reduce your repayment burdens, while still meeting your financial obligations and securing access to necessary working capital.
5. Monitor Your Financial Health
A small business loan can be a valuable resource, but it’s imperative that you’re responsible when utilizing and repaying it. Follow a budget, so that you aren’t using your loan to pay for unneeded expenses. In addition, ensure that you are committed to repaying your debt, so that this loan doesn’t become a burden.
If you’re having trouble making your business loan payments, look for ways to either increase revenue or cut costs. These changes can put your business in a better place financially and allow you to pay back your business loan in a stress-free manner.
6. Be Honest with Your Lender
When you’re in the process of paying off any type of business loan, be open with your lender. If you’re finding it challenging to make your payments on-time, contact them to discuss your options. We mentioned refinancing options in section #4, and this is something you may want to consider.
By being transparent with your lender, they’ll be more likely to trust that you’re a responsible borrower. This will help you in the future if you decide that you’d like to apply for additional financing for your business.
Conclusion: Understand the Business Loan Repayment Process
A small business loan could help you grow your business. When taking out a loan, you must make repaying it a priority. If you manage your finances responsibly and make payments on-time, your business loan experience will be a success!
Do you have any other tips for business owners trying to successfully repay a loan? Share your top tips with us in the comment section!
Editor’s Note: This post was updated for accuracy and comprehensiveness in September 2020.
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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
