7 Smart Loan Repayment Plans for Your Small Business — Small business loans are very great, but they can also put you in quite the bind if you aren’t careful. The payments are often large, and it can be easy to get carried away with taking on loans that you don’t actually need. To make sure you don’t fall into a trap, make sure to consider these seven loan repayment plans for your small business and choose the one that works best for your budget and needs.
1) Paying Off the Principal
Every business loan has a principal. This is what you originally borrowed. Every month, your payments will be applied to your principle first. Make sure you know how much of your payment goes toward paying off your principal and then how much goes toward paying interest. If you don’t have a loan repayment plan in place, you may end up stuck with a large interest bill at the end of your term if it takes longer than expected to pay off your business loan. The longer it takes to pay off your debt, the more money you lose out on in terms of interest. Set up a payment schedule that works best for you and stick to it as closely as possible!
2) Debt Consolidation
One of the best ways to manage your small business loan repayments is to use a debt consolidation plan. This allows you to combine several loans—including credit cards and home loans—into one larger loan with a lower monthly payment. It can also be used as an early pay-off strategy if you decide that’s your best bet to get out from under a mountain of debt quickly. The key here is to make sure that your new loan has a fixed interest rate, meaning it won’t change over time. That way, you know exactly how much money you need to set aside each month for repayment.
3) Paying off Credit Cards for your business
The most common question I get in my small business is how to pay off credit cards. So let’s start there, shall we? If you’re paying off credit cards, you’re probably focused on reducing your monthly payments. In fact, if you have enough money to do it, it makes sense to pay off your highest interest debt first. When that card is paid off, move onto another one with a higher interest rate and so on until they are all paid off. Paying off credit cards doesn’t mean getting out of debt; it means taking control of your financial situation by getting rid of high-interest loans.
4) Take Baby Steps
If you own a small business, it’s easy to get overwhelmed by debt. But one of these small business loan repayment strategies will put your mind at ease and help ensure you don’t lose your shirt in bad economic times. One smart option is to start out with a 10 percent payment each month, but once your loan balance has been reduced to 25 percent or less, raise that payment up to 15 percent until it is paid off. After that point, increase it to 20 percent—and so on.
5) 3 Easy Steps to Financial Success
When you’re just starting out, it can be hard to imagine that one day you will pay your business loans back. However, taking a few extra steps now to plan how and when you’ll repay your loan can save you a lot of stress in future months. Here are three easy steps to financial success 1. Determine how much money you need: Calculate how much cash flow your business needs each month to sustain itself and make sure you don’t over-extend yourself with your initial investment. 2. Decide how long you want to take to pay off your loan: Once you know how much cash flow you need, decide how long it will take for your business to generate enough revenue to cover those costs—then divide that number by how many payments you want to make per year. 3. Divide up your repayment period into equal monthly installments: Use an online calculator or spreadsheet to figure out how much you need to put toward paying down your loan every month, then divide that amount into equal payments. The sooner you start planning how and when you’ll pay back your small business loan, the better prepared you’ll be for any unforeseen circumstances.
6) Invest in your Business
A loan repayment strategy is important to help you manage your business loan and repayments wisely. Once you know what you can afford to pay, consider these 7 smart payment plans, each with its own benefits and drawbacks: Fixed monthly payments over an extended period of time. This allows flexibility in case sales fluctuate unexpectedly. Also known as an amortizing schedule, where your payments are larger at first but reduce over time. It also makes it easier to budget in advance.
7) Explore The Different Options with an Advisor
While there are many things you can do to pay back your loan, including taking advantage of a business credit card and setting up direct debits, it’s important to explore all of your options before making a decision. An advisor who specializes in small business financing may be able to help you develop a plan that is right for your financial goals. For example, if you have been approved for a $50,000 loan but only need $30,000 to get started, an advisor might recommend waiting until you have more cash flow before repaying the full amount. This will allow you to save money on interest payments while allowing your business time to grow.