When responsibly undertaken, a business loan is a great way to raise capital for your business quickly to ensure that you can cover expansion or periods of uncertainty. As with all loans, you must be prepared to pay it back with interest as instructed by your lender. There are several steps you can take to make sure that you are paying off your loan, correctly, responsibly, and on time.

Get to the grips with the terms of your loan

This may seem basic, but it is surprising how many businesses take on loans and are not aware of the full ramifications. The terms of your loan are strictly legally binding and as such will need to be obeyed stringently. Making sure that you fully understand your loan will help you navigate it, communicate with your lender, and repay it more efficiently. What should you know?

  • When does repayment begin? Some lenders offer a grace period or ‘capital repayment holiday,’ others will require that you begin repayments almost immediately.
  • What are the payment due dates? Knowing this will ensure you can integrate it into your business plan and cashflow more effectively.
  • What are the payoff amounts?
  • Are there fees for prepayment? You might save on interest overall but be charged a fee for paying your loan off early.
  • What are the penalties for overdue payment? Hopefully, this information will not be necessary. But it is better to know ahead of time what sort of penalties you might face rather than be surprised by them.

Make a new business plan

It is critical that the responsibility of your loan is integrated into the long-term plan for your business. Understand what effect the repayment will have each month and adjust to meet it. This is especially critical if your business experiences big variations seasonally or from month to month. You want to make sure that you are meeting all of your repayments on time, every month, and a comprehensive business plan is the best way to achieve this.

Understand the interest rate

Business loans charge interest in different ways. The difference will affect what you have to pay each month. A fixed interest rate means that the rate of interest will remain the same throughout the length of your repayment. A variable interest rate means that the percentage of interest can rise and fall according to the benchmark rate set by your lender. This means that you could pay back more or less than a fixed rate loan. It will also mean that the repayment amount will likely fluctuate from month to month, which you will have to account for in your business plan. Knowing the interest rate will help you adjust your cashflow to suit fluctuating payments and ensure you’re not falling behind or surprised by a sudden increase leaving you unable to pay.

Invest in accounting software

There are a vast range of modern accountancy programs that can help you manage your business expenses, including loan repayments. Having the software keep track of when repayments must be made by, and for how much, will keep you on time and ensure you are not struck by any late fees. Xero accounting software for example, can keep your accounting records up to date so you can keep track of when you are in a good financial position to pay off your business loan. If you’d like to increase the payment amount to get the loan paid off quicker, accounting software such as Xero will help analyse what the knock-on effect might be elsewhere in your business. It is an extremely useful tool to assist you in managing your loan payments.

For further advice on how to effectively integrate business loan repayments into your business plan and cashflow, engage the services of a professional accountant. At Bells Accountants we specialise in producing tailored finance services all handled by qualified experts. To find out more just contact our team by calling 020 8468 1087 or sending an email to .