After feeling let down by their day job, many dream of being their own boss, only to realise there’s a mountain of work behind every successful business. One of the most challenging parts of running a small business is keeping up with the loan repayments. With all the confusing terms, high interest rates, and the constant juggling act of managing a business, it’s easy for owners to slip up to fall behind on payments. And that slip-up can severely hurt their business credit score.
Just like any small or medium-sized business owner, you’ve probably taken a loan to boost your entrepreneurial venture, expand, or handle financial challenges. Getting an SME loan or a collateral-free loan like an unsecured business loan can be a lifesaver when cash flow gets tight. But beyond just getting the funds you need, there’s also the crucial task of ensuring you repay that loan on time. Hire Fractional CFO to achieve your financial goals without the overhead of a full-time CFO with the help of Precise Management.
Tips to Ensure Timely Loan Repayments for Small Business Owners
Here are a few tips to ensure timely loan repayments as a small business owner. You must pay on time to avoid any crunch with the lender, which may also affect your credit score.
- Make Loan Payments a Priority: The best tip for handling your small-business loan effectively is to put it at the top of your financial to-do list. Don’t leave debt payments as an afterthought. Your first pay cheque every month should go towards paying off your business loan. Stick to a practical and effective plan for repaying your debt on time. If the numbers don’t quite add up, take a hard look at where you can trim expenses.
- Go Automatic with Payments: Depending on your memory, remembering the date of monthly loan payments is risky business. Things get busy at the start of each month, with bills for loans, rent, utilities, and vendors piling up. It’s easy for payments to slip your mind, especially if it’s up to you to remember to log in and pay online or write a cheque. Avoid the hassle by setting up automatic monthly payments. While scheduling big payments in advance might seem daunting, it actually helps you stay on budget. Missing payments can rack up hefty late fees and harm your credit score, so automation is your friend here.
- Make Payments More Often: If you can swing it financially, consider paying more frequently than once a month. Switching to bi-weekly or even weekly payments can actually save you money in the long haul by reducing the interest you pay.
- Cut Your Costs: To afford those extra payments, start by slashing your expenses. Begin with your utility bills — compare rates for electricity, internet, and other services to find the best deals. Also, try renegotiating your rent with your landlord. If your efforts fail, think about moving to a more budget-friendly location. Instead of hunting solo, use a real estate agent to find a spot that fits your needs.
- Upgrade Your Billing System: If you’ve been winging it with invoice tracking, it might be time for a more organised approach. Using a structured system can streamline cash flow and reduce headaches, especially as your business grows. Offering incentives like discounts for early payments can also encourage clients to settle up faster.
- Stay on Top of Your Finances: Whether you handle your books or work with a professional, keeping a close watch on your financials is key. Checking in monthly gives you a clear view of how your business is doing financially and helps catch any unusual trends or mistakes early on. Also, chat with your suppliers about discounts for buying in bulk or loyalty, and cancel any unnecessary services or subscriptions. Trimming costs like this free up cash that can go toward paying off your debt and keeping your business on track.
- Use Windfalls Wisely: Instead of just making your minimum monthly payment, think about using any extra money you get — like a tax refund or a significant boost in revenue during busy times — to make additional payments on your loan. It’ll help you save big on interest and shrink your loan term.
- Round Up Your Payments: Another trick is to round up your regular payment amount. For example, if you owe INR 35,000, consider rounding it up to an even INR 40,000. This small increase can add up to thousands of extra cash each year, making a big dent in your loan faster. Plus, it’s easier to keep track of and quicker to jot down on a cheque.
- No unnecessary loans: While business loans can be a game-changer for growing your company without relying solely on revenue, it’s crucial to use them wisely. Taking out a loan might seem simple enough, but don’t borrow more than necessary, especially if you’re already managing existing business debt. Even a little extra debt can throw off your ability to keep up with payments on time. Looking ahead, if you do need another loan down the line, having a low debt-to-service-coverage ratio will definitely work in your favour. It makes receiving approval for future loans a whole lot easier.
- Communication with Lender: It’s crucial to reach out to your lender as soon as you realise you might miss a payment. They could potentially assist by temporarily pausing payments or adjusting your repayment plan, especially if your financial situation isn’t improving anytime soon. In more dire situations, you might discuss a debt settlement with your lender, where you agree to pay back a portion of the loan. Just keep in mind that opting for a settlement could affect your credit score and make it harder to secure loans down the road. Also, if you are familiar with the lender, try to pitch a low-interest-rate loan, which can help you repay your loan easily.
Conclusion
Effectively handling your SME loan payments or unsecured business loans is key to keeping your organisation financially secure and setting it up for long-term success. Using the tips mentioned earlier, you’ll be well-equipped to manage repayment challenges confidently.
If you have a solid repayment strategy in place and are considering applying for an SME loan, go for a low-interest rate loan to help your business grow. Look for a reputed bank or trusted NBFC offering competitive interest rates and simple eligibility for MSME Loans. Plus, check whether their online repayment methods make it convenient to pay on time and steer clear of extra fees.