It’s not very often that someone can start up a business without taking out a loan. Even after the business is up and running, many owners will take out more loans to help with all of the operating costs before they have enough revenue. A business loan can really benefit a company when they need it the most. However, it is also easy for those loans to get out of control and start costing you more money. Failing to pay off your loan won’t just hurt your credit score, it can also make it difficult to access any future capital if needed.
Since it is so crucial for a business to pay off their loans in time, here are a few tips to help you get started on your payments.
Watch Your Business’s Financial Health
Monitoring the health of your business’s finances shouldn’t be only for paying off loans. It should be all the time. If you are paying off loans though, now is the time to really pay attention. Set up a business budget that tracks your monthly revenue, expenses, and how much you owe and to who. This budget will help you keep track of your loans, your payment schedule, and whether or not you need to make cuts to keep your revenue higher than your expenses.
Set Up a Payment Schedule
You want to ensure that you not only pay every bill but that you pay them on time. One way of doing that is setting up a payment schedule. There are a few ways you can do this.
For one, you can have a calendar dedicated to your payments. This would be handy if you have multiple loans. You can schedule all of your payments on, or around the same day.
Secondly, if you have utility bills and loan payments all within a couple of days of each other, dedicate a specific day that is for paying bills.
Last, you can set up auto payments if your loan provider allows it. Auto payments will automatically take the money out of your account on a set date. That way, even if you forget, your loan is still getting paid.
Pay Off the Highest Interest Loans First
When you pay off loans, you’re not only paying off the money you took out, but you’re also paying back interest too. Some loans have higher interest than others, which means they will cost you more money in the long run.
Start paying off the loan with the highest interest. Once finish that off, all of those payments can then go towards the next highest interest loan. It will continue moving until your last loan. Make sure that you still pay the monthly minimum for all other loans though.
Look Into Consolidation
Businesses have the option to consolidate their debt the same way consumers can. You would go to a debt consolidation company to see if you can negotiate one large loan with them at a lower rate. Instead of paying off multiple loans at a higher interest rate, you’ll then have one large loan to deal with.
Don’t let loans and debt take over your small business. With a smart plan in place, as well as utilizing other options like consolidation, you can stay on track with your payments and be debt free faster than you think.