Congratulations! You’ve compared your offers, selected the best one for your business, and secured a small business loan. Now what? Once you have capital in hand, these savvy repayment strategies can help you stay ahead of the curve, make payments on time, build business credit, and manage debt like a pro.
1. Make Yourself a Loan Quick Guide
You may think you’ll remember the details of your loan forever, but it’s advisable to write down the key facts and any details you need to remember while they’re still fresh. You’ll want to include the following information:
- Your lender’s contact information
- Loan term
- Loan amount
- Interest or factor rate
- Repayment cadence
- Any potential early repayment fines
When you have all of this information easily accessible in one place, it’s easy to reference when you or someone else has a question about the loan.
2. Know Your Repayment Schedule
Your repayment schedule will depend on the type of loan you have. Some loans are set on a monthly repayment cadence, while others have weekly or even daily repayment schedules. There are benefits to each type of repayment schedule, but the common denominator is that you need to know which one your business has. Check your loan details or ask your loan officer if you’re not sure. You’ll need this information to make payments on time.
3. Set Up Automatic Payments or Payment Reminders
Setting up automatic payments reduces the risk of late payments. When you set up automatic payments, the funds are deducted from your account and applied to the loan on a set schedule. You can also make recurring calendar reminders for your payments. Calendar reminders can work as a supplement to automatic payments, reminding you that it will take place, or as a stand-alone reminder if you prefer to make manual payments.
4. Create Your Amortization Schedule
Amortization refers to the process of paying off debt over the term of the loan with regular payments toward both the interest and the principle. Many business loans, including business term loans, SBA loans, and commercial mortgages, use an amortization schedule. The lender knows exactly how much you owe and when. You should, too.
How an Amortization Schedule Can Benefit Your Business
Making an amortization schedule allows you to easily track your repayment schedule, changes to the principal over time, and changes in interest over time.
What to Include in an Amortization Table
- Payment numbers
- Date of payment
- Scheduled payment amount
- Beginning balance (before payment)
- Any additional payments
- How much of the payment is toward interest (in $)
- How much of the payment it toward the principal
- Balance owed after the payment is made
5. Repay Early, If Possible
If your lender allows early repayment without a fee, you can save money by repaying early. This can save you on interest payments and give you the freedom to take out a new loan in the future. Because business loans usually have a quicker return on investment, you don’t want the term of the loan to extend longer than it has to be. You may find that you need financing in another 3 months for a new piece of equipment or to fulfill a large purchase order/sale. If you’ve repaid your previous loan early, then you are free to take out a new loan.
Some lenders have penalties for early repayment. This is because when you repay the principal early, they lose out on the interest payment. In turn, they add an early repayment fee to recoup that lost income. Depending on the fees, you may still decide it’s worth it to repay early and give your business more flexibility for future financing.
Refinancing is where you take out a new loan to repay the previous loan. It can often come with lower interest rates. This is especially beneficial if you’ve built your business credit and you may now qualify for more enviable terms and rates or if you originally took out the wrong loan product for your needs.
7. Check Your Credit
Check your business credit to see how your loan repayment is affecting your credit score. Managing your loan repayment is one of the best ways to build and improve business credit. You can get a full credit report from the 3 major credit reporting agencies: Dun & Bradstreet, Equifax, and Experian. You can find more information on how to get your credit report here.