You have got your business loan; Your dream enterprise is all set up; You are all happy and excited!
What’s next? Repaying your Business Loan on time as per the agreed loan schedule.
Many entrepreneurs get jitters when we talk about loan repayment. They consider it to be highly complicated and need meticulous planning to repay the business loan. It is rather a matter of disciplined debt management and financial planning that are required to pay off your business loan without a hitch.
When should I start repaying my business loan?
- Most business loans require you to start repayments immediately from the next month. However, it depends on your lender and the loan structure.
- It also depends on the type of business loan you have availed; Line of Credit or Overdraft facilities may not have a fixed repayment schedule.
- Talk to your lender regarding this and work out a repayment plan that will accommodate your cash flow and monthly income.
How are the repayments made?
Visiting the branch, filling up deposit slips, waiting in long queues, depositing the cash at the counter; These are stories of the long past. Gone are the days of in-branch banking. Now everything is online. You could and should use these convenient repayment channels for better debt management:
- Standing instructions
- NEFT Mandate
Digital payments are quick and instant so they reduce the chances of late payments and defaults.
How can I repay my business loans successfully?
Here are some simple pointers for business owners who are committed to repaying their business loan on time:
1. Do a Thorough Financial Assessment
Evaluate the company in-depth and have an honest financial assessment. Determine your working capital requirements and ensure that you are not exceeding the limits of your loan. Any business, no matter what industry they are in, requires a budget. And there's no way to find that out unless you know what there is to know about the company's finances.
Knowing the company's budget would also assist you in assessing the amount of the loan you can take out. Avoid the desire to borrow much more than you require – payments can seem manageable at the time, but they can quickly add up and spiral out of control. There's no need to take more than you need with a well-planned budget.
2. Manage Your Cash Flow
Cash flow management is very important to have a healthy budget. Without proper cash flow management, you cannot meet your expenses or pay your monthly loan EMIs on time.
There are a number of tools available online to help you with this. Take advantage of them.
Remember, never default on any payments. If you are having trouble making the repayments, reduce your cash outflow by cutting unnecessary expenditure.
3. Never Mix Business Expenditure With Personal Finances
We all have heard this. If you think this is one waste piece of advice, think again. When you separate your business finances from your personal finances, not only are you keeping future financial problems at bay, you are also protecting your personal assets. In case of any litigation in the future, your personal assets will not be affected as they have been kept away from the business.
4. Increase Your EMI Amount During Busy Seasons
When you have more cash during busy seasons, use it to pay more towards your loan. This will reduce your interest burden considerably. Loan management is all about smart repayment; you need to deposit more money into your loan account whenever possible so that you can pay off the loan faster and with less interest. If not, your interest amount will be very high and sometimes, you would be paying more interest than the principal amount. To avoid this, you have to make small additional repayments whenever you have a surplus amount.
5. Have Constant Communication With Your Bank
Maintain a good relationship with your bank. Talk to them regularly to understand how to manage your loan better. If you find yourself struggling to make repayments, let them know so that they can give you solutions.
Being friendly with your banker will help you negotiate the loan terms better. In future, if needed, you can get the loan restructured to allow for easier repayments. You may ask them to equip you with any one of the following:
- Having your loan extended
- Interest rates to be reduced.
- A loan arbitration
- Reducing your monthly payments to the bare minimum, for a short-term
- Payments to be delayed, again, for a short-term
6. Know When You Need Help
If at any point you feel that you need some assistance with the loan, don’t hesitate to ask out loud. There is nothing wrong with seeking help with your loan. It is better to ask for help rather than defaulting on it. You may face difficulty during slow seasons. Go for loan refinancing during such times.
When you're feeling distressed managing payments, contact your bank right away to explain the situation. Lenders are quite often inclined to assist out an alternate payment plan if you act promptly and don't make a habit of making late payments.
- What are the different kinds of business loans available in the market?
You can get a business loan as a:
- Line of Credit
- Term Loans
- Working Capital Loans
- Short term loans
- Equipment financing
- What are the repayment tenures available with business loans?
The repayment tenure on business loans depends on the type of loan you have availed. Based on that, the repayment tenure may be anywhere between 30 days to 5 years, or even more.
- What are the repayment channels for a business loan?
You can repay a business loan through the following channels:
- At the branch
- NEFT Mandate
- What happens when you don’t pay back a business loan?
Defaulting on a business loan will lead to confiscation of your assets and legal action against you. You may be forced to file for bankruptcy as a last resort.
- Can I be put in jail for not paying back a business loan?
Consumer debt is not a criminal offence and hence you wouldn’t be put in jail. You may be summoned to the civil courts instead.
- Can I lend myself money from my business?
There are many disadvantages to lending money to yourself from your business. Mixing personal and business finances is not a prudent choice as it may lead to malpractices in your accounts and failure of financial management of your business.