Have you ever borrowed money to start your own business? If so, congratulations! Starting a business from scratch can be quite an experience. However, you must be careful to repay the loan as soon as possible as it attracts a high rate of interest and can become unmanageable if repayment prudence is not followed.
Here are six tips on repaying your business loan as quickly as possible:
Start By Understanding How Much You Owe
Knowing how much you owe in total is essential for keeping your payments on time. The more money you’re responsible for repaying and how long your repayment period lasts will determine what kind of monthly payments you have to make. (check business loan interest rate)
Estimate a range of payment amounts that may seem plausible based on your loan amount, interest rate, and term length. These key points are crucial to consider during the MSME loan process.
Read over your business plan to understand if any projected changes in sales or company finances over time might affect how much you can feasibly pay back each month.
- Look For Potential Sources of Income
It’s important to realize that lenders won’t loan you money because you need it. The lender needs assurance that your business will be profitable and you can afford the business loan interest rate, and there are several ways you can do that.
Develop a plan for how you’ll earn income from customers and document how much money each source will bring in. Find out what percentage of your income each customer is worth—how much they pay per month or spend annually—multiply it by how many customers come through your doors on average.
Doing so gives you an idea of what percentage of business revenue comes from which type of clientele.
Figure out whether a consistent base of customers is something your business could depend on or if growth will require aggressively going after new clients every few months.
- Prioritize Your Debt Repayment Plans
If you’re serious about repaying your business loan promptly, it’s crucial to create a strategy and closely look at the documentation of the MSME loan process.
There are instances when we take multiple business loans from different NBFCs and lenders. Identify which business loans have higher interest rates and larger balances, and work to tackle those first.
Be sure you can do so comfortably, though — don’t fall into the dangerous territory by taking out additional loans or borrowing money from friends and family to cover your payments.
It might seem idealistic, but it could lead to larger problems later. As soon as you can, pay extra toward your debt to get rid of it more quickly; small amounts go a long way over time!
- Choose Automatic Loan Installments
Like your mortgage or car loan, automatic payments will lower your stress in repaying your business loan. You won’t have to panic about remembering when it’s due, and if you are short one month, it will still be paid.
Not only that, but automatic payments help control spending. Most lenders and NBFCs now offer automated bill payment facilities.
- Amount You Can Repay Each Month
Before you start sending in cheques, it’s essential to determine how much money you can afford to put towards repayment each month. While a loan repayment becomes a statutory commitment, you don’t want to overextend yourself and be unable to meet your other financial obligations.
If it turns out that servicing the loan is getting tough, try negotiating a better business loan interest rate with your lender or adjust your repayment schedule.
Whatever course of action you take, remember that now isn’t the time to relax—protecting your credit score is one of your top priorities.
- Run Through Business Expenses
Before you get too far into your repayment plan, it’s a good idea to run through all of your business expenses to find ways you can save.
For example, are there any extraneous monthly expenses that can be eliminated or reduced? Are there any costs you can cut that aren’t necessary right now? Can you negotiate better terms with vendors, suppliers, or partners?
Don’t overlook simple things like getting energy-efficient appliances or switching to a cheaper service provider. The goal is to free up more cash flow so you have more capital available for making loan payments every month.
Additional Read: What is the Checklist Required to Apply for a Business Loan in India?
Follow these six tips on repaying your business loan and be thorough and careful so that the result is positive and leads to a successful venture!