Tips for managing small business loan repayments

With just over 2 million small businesses in Australia, and estimates suggesting there are just over 1 million small business loans, that means around half of small businesses have a loan

Being able to access finance is important, since it fuels the growth and viability of small business – a sector that provides 40% of all jobs in Australia.

If you’re a small business owner with a business loan, here are our top tips to get the most out of your loan, and help you manage your loan and its repayments.

Choose (your lender and loan) wisely

As a small business owner, you’re probably all too familiar with the ups and downs that come with running a business. That’s why it’s important to choose a lender and a loan that offer maximum flexibility.

Flexible options include:

• Being able to choose a term that suits your needs.
• Paying daily, weekly, fortnightly or monthly so repayments fit with your cash flow cycle.
• Having the option to use the loan for a variety of business purposes.

Choosing a loan that allows you to repay the money sooner than agreed – without any penalty – is another wise move when choosing a lender and loan to help kick your business goals. Some lenders even offer discounts for early repayment.

Keep an eye on cash flow

Cash flow – the money coming in from revenue and going out for expenses – is the lifeblood of any business. Even if business is booming, cash flow can still be a challenge. It’s important to manage cash flow well, particularly when you have loan-repayment obligations.
There are some simple ways to ensure cash flow doesn’t become a problem:
• Keep on top of invoicing: The sooner you invoice, the sooner you’ll get paid.
• Keep all other accounting and reporting up to date: If there’s an issue, you’ll notice it sooner and can take steps to fix the problem.
• Build a cash reserve: This will provide a cushion if the unexpected happens, and can get you through seasonal slumps.
• Forecast your cash flow: A cash flow calculator tool can do the trick.

Pay back more during seasonal peaks

“Make hay while the sun shines” still rings true for many aspects of modern life and business.

If conditions are great and your business is making bigger profits than usual, consider paying more towards your loan. It can save you a significant amount of money in the longer term.

JOHN, a café owner, has a $50,000 business loan he’s paying off at a rate of $600/week over 1 year and 9 months. His business is doing well and he could pay more, but he’s just cruising at the agreed rate.

JANET, a mobile dog washer, has a $50,000 business loan she’s paying off at a rate of $600/week over 1 year and 9 months. Her business is booming and she decides to add $200 to her repayments. This saves her $1,000 and she pays the loan off 5 months early.*

* Disclaimer: These are examples only and are general in nature

Maintain a strong credit score

Having a great credit score makes it easier to access finance and you have more options, which can potentially save you money in repayments.

To build and maintain a good credit score:

• Set reminders to make sure all bills are paid on time.
• Consolidate credit cards to have fewer balances.
• Make sure you don’t hit the limit on your credit cards.
• Always read through credit card bills and chase up any errors.