As a small business owner, managing cash flow as your business grows can be a challenge. A business loan can help bridge the gap between invoice payments, help you take on more staff or buy materials as and when you need them.
In Australia, business loans are most commonly used to maintain cash flow, replace, or upgrade existing capital and purchase new capital.
Debt can be a useful tool to grow your business but taking too long to pay off your loan balance can cause new problems.
Paying off your business loan early means your loan has less time to accumulate interest. The principal repayment will be lower than if you wait for the full term of the loan to pay it back. That means more money in your pocket and less time spent thinking about repayments.
Here are a few ways to pay off your business loan faster and get back to business as usual faster.
Make Frequent Partial Payments
Provided that your business loan allows it, pay your business loan back in half payments every two weeks rather than making one monthly payment. By the end of the year, you will have made 13 payments on your business loan – as opposed to 12 payments on a monthly repayment plan. In the long term, this will allow you to settle the debt on your loan months earlier.
How does this work? On a fortnightly payment plan, you will be making payments every two weeks which reduces the amount of interest you pay over the entire year. Plus you’ll be able to squeeze in a whole extra repayment during those twelve months. Since more of your money is going to the amount you borrowed rather than on interest, you’ll reduce the principal of your loan faster.
With any luck, you won’t notice a huge difference to your day-to-day cash flow, but you could take five months off your loan repayments.
Pay More Than The Minimum Monthly Repayment
Another strategy is to pay more than the minimum you are required to pay each month. Most lenders don’t mind if you pay more than the exact monthly repayment. Round your repayment up to the nearest hundred if you can. This will reduce the amount of interest you will have to pay over the lifetime of your loan.
Assess the maximum of how much you can afford to put towards your loan. You can always pay less for some months if you don’t have the cash flow.
Make Lump Sum Payments When You Can
If you can’t afford to make extra payments immediately, that doesn’t mean you’re stuck paying your loan back at the full-term rate forever. If you sign on a new client or come into a busy season, put some cash aside to make a lump sum payment onto your loan.
Even one extra payment per year makes a difference in repaying your loan faster. Being a little ahead with your payments helps a lot in the long run. If your business loan was used to grow your business, why not use some of that return to pay off the loan?
Minimize Your Spending In the First Year
In the first year of your business loan, minimize your extra spending as much as you can. Like a personal loan, having a budget for your business expenses and sticking to it is a good idea to help you pay back debt. Being frugal doesn’t have to last forever but if you can cut back on unnecessary expenses for the first twelve months of repayments, you’ll be able to make larger payments to your business loan.
Ask your staff what work perks they actually value. You might find that you are paying for things that your workers don’t actually use much of value. See where you can remove or replace these options.
Maximize Lender Offers
When you take out your business loan, talk to your lender about any incentives they offer that will make a difference to your repayments. Some lenders give small discounts on administrative costs or for choosing electronic statements versus paper statements. Make use of any discounts the lender offers as even if it’s a small amount it can make a difference.
Apply For A Business Loan With ThinkCap
At ThinkCap, we make it our business to educate our clients on the fine print when it comes to their business loan repayments. ThinkCap offers tailored funding solutions for small businesses designed to help you grow. As your strategic partners, we look for ways your business can improve and provide the right advice to help you use your loan effectively and pay if off faster.
