6 Ways You Can Ensure Your Business Loans are Paid on Time
If you have a business idea and a solid plan of how you will start this venture, then you already are on your way to starting your own business. Yet you are aware that all businesses need to have a capital to start with and use until it can fund itself. You can ask for a loan, but loans have rules that you have to follow. This guide will help you ensure that your business loans are paid on time.
Understand the Loan Terms
All business loans have terms set by the lender and approved by you. The terms consist of how often you need to make payment; for instance, whether it’s monthly or weekly. Some loans are paid back with interest, the amount of interest is written along with the terms. For instance, on a small scale, some people who have credit cards end up spending money they possibly won’t be able to pay back. This puts them in a loop of amounting interest and late payment fines, which put them in great debt. This often happens because the person failed to understand the terms of credit cards.
Set Up a Separate Bank Account
It’s recommended that the funds be deposited in a separate bank account other than the one you use for the business. Pretending that these funds don’t exist will minimize the chance of overspending. Moreover, having a separate bank account will ensure that you, for example, spend on operational expenses, and not anything else.
Setting Up Automatic Payment
Auto payment is an option, where you allocate a specific amount dedicated for the repayment of a loan, this could be done by depositing some of the revenues in that account. Another way is, if it’s a monthly payment, you deposit the amount every business quarter, that ensures that the payment is made. While you unburden yourself from thinking about loan repayment for until the next quarter.
When you enable auto-payment it protects you from missing a payment. Missing payments for loans could affect your credit and results in you having bad credit. Bad credit could possibly bar you from having another loan in case you needed more financing for your business. Additionally, there could be a penalty if you missed a payment that will accumulate along with the interest and your debt will grow, this is actually one of the leading causes of businesses failing to reach their fifth year in the market.
Follow Your Budget Plan
In your initial business plan, you should have had a plan for how you are going to fund your business. So, don’t let having a big balance in your bank account through you off course. You have to be aware that financing purchases for your business have to be planned ahead. Purchases such as rent, employee salaries, and supplies should be accounted for as top priority as they keep the business stay afloat. The measurement for the success of a business is that cash inflow is more or equal to the outflow, this should help you evaluate if your business is a success.
Pay Attention to Small Expenses
You might underestimate what 100$ here or 50$ there would do. But we can confidently say that these small expenses snowballs into a big number, and could deeply affect your balance. So, always make sure to record them with your other expenses. Additionally, it is recommended that you put someone else who has a background in financial management in charge of monitoring and managing the business expenses. When someone is closely monitoring the process, this will prevent any expense from going unnoticed. Most likely you’d be consumed with running the business, so you’d want to avoid any mistakes from taking place, especially if it’s money-related. That’s why we recommend having someone dedicated fully to handling finances.
Create a Strategy for Collection
When dealing with clients, the collection is one of the things that you have to set a rule for. If you have a loan to pay, you can’t afford a client to forgo a payment or delay it. That’s why there should be a strategy of how you are planning to collect the money. A clear strategy will prevent customers from falling through. For instance, an invoice has to be sent to the client, if payment isn’t made on time then a collection letter reminding the client of the money. In the case that all these trials did not work, then a follow up with a phone call or sending a representative is always a good effective option. All this has to be clear to the client from the beginning, to avoid delay when it comes to you paying your loan on time.
Receiving funds from lenders is easy, but there must be a clear strategy to pay these funds back. Paying these funds back is essential to warrant the survival of your business.