Term Loan Repayment: Balancing Finances and Business Growth

You worked hard to set up your business and borrowed a term loan to take it to the next level. Now what? Once you get the required funding for your company, making a solid plan to repay it on time is essential.

Staying on top of your term loan repayment is crucial, as you would not want to have delinquency in your credit history. You must know how to balance finances and business growth while managing term loan repayment to avoid such a situation.

Here are a few tips to repay your loan while handling your business finances.

Term Loan Repayment: Balancing Finances and Business Growth

Prioritise Prompt EMI Payments

Make a well-calculated business budget to manage your cash flow. When you borrow a term loan, calculate your loan EMIs using an EMI calculator and opt for a repayment plan with budget-friendly EMIs.

Next, plan to set this amount aside each month and prioritise paying it above other less essential obligations. Going on a business trip, purchasing new equipment, or investing in other avenues does not make sense if you are unable to handle your current loan EMIs.

Remember, if you miss your loan repayment, you will end up with a default. As a result, your credit score will fall, and the lender will seize your collateral if it is a secured loan.

Missing several EMI payments will cause the lender to send your account for collections, hurting your credit history for several years. If you default on the loan, the lending institution may file a case against you and demand loan repayment along with interest, penalties, and other charges.

Are you finding it challenging to manage your loan repayment? Talk to your loan provider to restructure your loan plan to make repayment easier.

Adjust Your Repayment Plan According to Your Business Revenue

Monitor your monthly cash flow to manage your loan for business. While running a business, some months have unexpected expenses or slow revenue generation, while others get more than expected.

To manage your loan repayment efficiently, be prepared to reduce unnecessary costs during slow months. However, if you generate more revenue during a month, consider paying more than the EMI amount or set aside some amount for timely loan repayment in the future.

Adjusting your repayment plan according to the monthly finances is crucial for prompt term loan repayment. You must repay what you borrow to continue getting credit when required. Ensure the cycle of borrowing and repaying stays even to avoid the debt circle.

Track Your Expenditures

Thorough bookkeeping is essential to separate your borrowed loan from your personal and other business finances. Ensure holding enough money in your account to pay monthly EMIs on time. Refrain from using the loan funds or mixing up the expenditure categories. If you have borrowed a Business Loan for the first time, here are a few tips for efficient repayment management:

● Have a dedicated business account to separate your corporate expenses from your personal finances.

● Manage your receipts as they categorise your expenses and prove your spending when filing taxes or reviewing finances. Keeping track of receipts also helps catch errors or discrepancies in the records.

● Use a dedicated spreadsheet or bookkeeping software program to track and organise your business expenses. Use a simple spreadsheet to record your credits and debits into separate categories for efficient tracking. If you don't have time to manually manage your spreadsheet, use a bookkeeping software or service provider.

● Managing the business income and expenses is challenging for individual business owners. Therefore, working with a professional accountant is necessary to manage the budget effectively and save taxes.

Over time, you will understand your business cash flow through months and seasons. Accordingly, you can adjust your strategy to repay your loan for business. For instance, if you receive payment at the beginning of a month, it is the best time to schedule your loan EMI payment.

Also Read: 8 Ways Businesses Can Leverage Data

Pay Extra When Possible

Whenever your business performs well and you receive some extra revenue, consider paying extra towards your loan repayment. This will help you save money on the interest amount over time, making you debt-free sooner.

A Business Loan calculator will help you calculate how much you can save by paying more than your EMI amount.

Term Loan Refinance, if Beneficial

With Business Loan refinance, you can benefit from changing circumstances, make timely repayment, and save money on the loan cost. Loan refinancing makes the best sense when you find a new loan plan with lower interest rates.

If your business finance has improved and you can get a better deal now, consider refinancing your current loan to make repayment easier. However, remember that refinancing does not make sense all the time.

Many lending institutions charge a prepayment fee for foreclosing a loan before term completion. Such charges will nullify the savings you make with a new loan at a lower interest rate. While considering a Business Loan refinance, calculate the costs involved to determine whether it will benefit you.

Negotiate With the Lender

Circumstances change, and it is common for business owners to face hard times. If you find yourself in a situation when timely loan repayment becomes challenging, you must talk to your loan provider as soon as possible.

Try convincing them of your case and devise a revised repayment plan to make EMIs more manageable. That may include making the EMIs interest-only for the time being or stretching the loan tenure to make EMIs smaller.

Not communicating with the lender and missing EMIs will only worsen things. Most lending institutions will readily help you during your tough times rather than letting you default on the loan.

Conclusion

Making timely EMI payments and monitoring your business finances are the sure-shot ways of managing term loan repayments efficiently. However, if you face trouble paying the loan, talk to your lending institution to make the repayment plan easier. Moreover, consider refinancing if you get a better loan than your current one.