Paying off commercial loans can seem like a daunting task. However, with careful planning and attention to details, it can become far easier to manage. Here are some of our favorite tips to help you pay off your business loans quickly.
Have a business plan
The first step to paying off a loan is to review your business plan. Create a business budget out of this plan which allows for daily expenses, larger purchases, and ensures enough money is set aside to pay loans.
Make sure you know exactly what all your expenses will be. If you know exactly what those are, including the monthly payment needed for the loan, you can better prepare for each step of the process. Having a clear understanding of where you are at allows for the foundation of a strong game plan and preparation for future actions.
Eliminate Unnecessary Spending
Find expenses to cut like unused tools, materials, or perks. Buy a coffee machine instead of going out to Starbucks for a staff java fix, or encourage employees to bring lunch or potluck, rather than providing lunch. If it takes up a portion of your revenue but doesn’t increase the revenue coming in, then it is best to eliminate it.
Formulate a Plan to Increase Revenue
Increasing revenue allows for better distribution of finances between expenses, profit, and paying off loans. There are several means of doing so, including sales, or finding new income sources, such as new locations or services, which will boost money going in, while limiting (or at least not proportionally increasing) the expenses needed to procure it.
Redirect Some Revenue to Principal Payments
Changing the amount of revenue that goes to paying off loans can help as well. By paying more than the required monthly amount, your business will chip away at the debt much more quickly. All of the additional payment will be directed towards your principle, rather than being eaten up by interest.
You should also remember that lenders aren’t motivated to help you pay off your loan more quickly. The larger your principle is, then the more interest the lender will collect each year. Paying off as much of that principle as possible will lower the total cost of your loan.
Rates change regularly based on the economy and the Fed. If rates have gone down since you obtained your loan, refinancing might allow you to save significant money.
The health of your business and strength of your credit history can also play a large role. If your business has grown or become more financially stable since your loan was issued, then you may appear more attractive to lenders. The safer of a bet you appear to be, the lower the rates they will offer.
Finally, you might not be in the cheapest financing vehicle available. By looking outside of the box and exploring other types of financing, companies can often refinance with a new type of loan and drastically decrease their monthly payments. If you want more information on refinancing options or current rates, our team is always available to answer questions.
Know Your Lender’s Late Payment Policy
Every lender has their own unique payment policy. Knowing that policy can help ensure not only on time payments but also the best way to pay off more of the principle. In addition to incurring high fees, late payments can have a negative impact on your business credit, hurting future loan applications. Avoid paying late at all costs, as it ensures lower rates, avoids fees, and keeps your business credit healthy.
Communicate with Your Lender
One of the easiest ways to ensure a painless and more effective payment plan is to keep in regular contact with your lender. Finding out what other resources they offer, or benefits they provide to their clients can help uncover better repayment plans. Refinancing or different payment terms may be available – but you don’t know until you ask.
These tips are some simple ways to help pay off your loan. However, none of these is a magic solution. It will take time and hard work to pay off your loans and make your business a success. We can help you find loans with affordable rates and terms, and work with you to connect you to lenders and others to help you.