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Woman on mobile managing small business finance

5 Tips to Manage your Small Business Loans

A recent report by the Australian Banking Association showed that there are around 1 million loans provided to small businesses, and that over half of small businesses have a business loan facility other than a credit card. Access to finance as a business owner fuels business growth, but managing the loans appropriately is important to ensure viability of the business.

This article discusses Lendfin’s top 5 tips that have helped our customers manage their small business loans.

 

1. Check the loan structure

There are hundreds of different business loan products on the market, each with different terms, benefits and drawbacks. By structuring your loans with your business goals in mind you may save thousands of dollars in unnecessary fees and interest. For example, if you are looking to purchase a car for business use, asset finance is generally more cost effective than a regular principal & interest business loan. Similarly, businesses who struggle with cash flow due to long payment terms may benefit from a debtor finance facility.

Speak to a Lendfin specialist to get the most out of your business loan structure and let your loans help increase your cash reserves, rather than drain them.

2. Maintain a healthy credit score

A strong credit rating means you will have more options for lending, which could potentially save you money. You may also qualify for lower rates and have better negotiating power with lenders. Basic steps to maintaining a good credit score include making repayments on time (including tax), consolidating any credit cards and refraining from hitting the balance, and limiting the number of credit applications you make per year.

3. Avoid new debt

Whilst new debt is often necessary and can even be beneficial, it can hinder your business growth if not done properly. Any new loans need to be considered with the long-term strategy in mind. Rather than taking on new debt, you may want to consider restructuring existing debt, cutting back expenses or increasing sales.

4. Pay more when you can

Seasonal cash flow affects many industries and can be used to your advantage. When cash flow is good, allocate more funds toward loan repayments to offset the leaner periods. In addition to giving you a buffer, you will also pay less interest over time. Be careful with this strategy as some loan products do not allow additional payments or the lender may charge a fee. However, fees can be avoided by funnelling your extra cash into a separate transactional or savings account which can be used to make repayments when cash flow is restricted.

5. Communicate with your lender

If you do find yourself in financial difficulty, the first course of action should be talking to your lender. Rather than punishing you, they will most likely help you to work out a payment plan or possibly even reduce repayments for a short term. Speaking with a broker is also a good idea as they have in-depth knowledge of different products on the market and may be able to help you restructure your debt before it becomes a problem.