5 Tips for Managing Your Business Loan

Business loans are powerful tools for building the business of your dreams — but, contrary to what many first-time entrepreneurs might hope, they are not free money.

Any type of financing you use to build your business will need to be repaid, and managing loans requires focus and diligence.

If you are still wondering “How do small business loans work?” you should contact a lender today to find out what types of financing might benefit your business and how.

Then, once you start growing your business with financial support, you can use the following tips to manage your loan into the future.

Carefully Track All Business Spending

Regardless of whether you are working toward paying down loans or not, you need a system for accurately tracking your business spending.

Businesses live and die by their cash flow; while many business owners intensely scrutinize their business income, you also need to pay close attention to your expenses to ensure that you are budgeting properly.

With the right budget in place, you will never miss a loan payment, and your business debt should steadily disappear.

A few strategies for tracking business spending efficiently include:

• Opening dedicated business checking and savings accounts.
• Keeping all receipts and invoices.
• Using accounting software (or an accounting Excel spreadsheet template) to organize spending into different categories.

Make Loan Payments a Budget Priority

There is plenty of financial advice that involves “paying yourself first,” but you should ignore this when it comes to business. Loans should always be a top priority in your budget; you should never skip a loan payment, even if that means cutting your own wages or lacking certain services for the month.

The easiest way to continue making loan payments on time and in full is by preparing in advance. When you sign your loan agreement, you should take note of the minimum monthly payment amount.

Then, as your business starts generating revenue, you might start putting aside more than that amount, which can be drawn upon during months when your business isn’t bringing in enough cash to cover loan costs.

Regularly Adjust Your Payment Strategy

It is a good idea to create a loan repayment plan from the moment you sign your loan agreement, but that plan should never be set in stone. You should allow the actual performance of your business to guide your loan repayment strategy.

For example, you might hope and expect to pay a certain percentage above the minimum payment every month, but if your business experiences a slow month with lower than-adequate revenue, you might reduce your payment to the minimum to better manage your budget.

On the other hand, if you make extra revenue, you might consider applying it to your loan or setting it aside to help cover future loan payments. Generally, whenever it is possible for your business to make extra payments, it is wise to do so, as extra payments can save you interest over time, liberating your business from its debt sooner.

Refinance When It Benefits You

Refinancing a loan is a process that involves obtaining a new loan to pay off your old loan. Refinancing can give your business access to more favorable interest rates and payment terms, especially if you have worked diligently to improve the creditworthiness of your business since you applied for your first loan.

Refinancing does not always make sense. There are always fees associated with loan processes, and in some cases, those fees will outweigh any cost savings you might gain with a lower interest rate. You should be careful to calculate every cost before and during the refinancing process to ensure that you are getting a good deal.

Don’t Be Afraid to Talk to Your Lender

Even if you procured your business loan online, your lender is an organization filled with human beings — not a mindless, heartless banking robot. In many cases, lenders are more than happy to work with borrowers to find alternate payment solutions during difficult periods; after all, some payment is better for a lender than a defaulted loan.

Your lender might help you work out a new payment plan or be willing to stretch payment periods longer as your business looks for the cash it needs to cover its debt. If you anticipate some troubled times ahead, you should talk to your lender as soon as possible.

More than half of all U.S. small businesses have relied on business loans, and it is likely that your business will acquire some kind of debt, too. Fortunately, with some preparation, managing a loan can be easy, allowing you to focus on more important aspects of building your business.