9 Tips for Managing a Small Business Loan to Ensure On-Time Payments

Here are the best tips for managing a small-business loan to ensure on-time payments.

Get Your Priorities Straight.

Arguably, the No. 1 advice for successfully managing a small-business loan is to prioritize it. Don’t treat your debt payments as an afterthought. The first payments you make each month should go to your business loan. Get on and stick to a solid debt repayment schedule. Other expenditures should be secondary to your debt payments. If the numbers don’t work, look for expenses you can cut. 

Use Automatic Payments.

Relying on your memory to send monthly debt payments is a fallible and risky system. It can be hectic during the first week of the month when payments for loans, rent, utilities, and vendor invoices are often due. It’s not uncommon for payments to slip through the cracks, especially if the onus is on you to actively remember to make an online payment or write a check.

Take the risk out of your debt payment by scheduling an automatic monthly payment. Although it can be daunting to pre-schedule large cash payments, it can also help you stick to your budget. Payments that aren't on time can lead to expensive late fees and seriously damage your credit score.

Make Frequent Payments.

If you're financially able, consider making payments more frequently. Going from one monthly payment to a bimonthly or even weekly repayment system will save you money in the long run because you’ll pay less interest.

Bring Down Your Costs.

Making additional payments means spending more money, so you’ll probably need more money on hand. One way to accomplish this is to reduce your costs. 

An excellent place to start is your utility rates. Examine the costs f electricity, internet, and other services, and shop around for providers that will give you the lowest rates.

You could also renegotiate your rent with your landlord. If rent becomes too expensive and your landlord won't budge, it may be time to move to a new, more affordable location. Instead of driving all over town looking for properties, use a real estate agent to help you locate a space that fits your needs.

Finally, talk to vendors about bulk or loyalty discounts and cancel unnecessary services and subscriptions. Anything you can do to reduce your costs will free up money for debt repayment and other vital expenses.

Revamp Your Billing System.

Think about how you manage your invoices and payments. Many small businesses, especially as they’re establishing themselves in the market, use a makeshift system of tracking payments. There’s nothing wrong with that, but using a more formal system allows business owners to standardize their cash flow with much less time and effort.

A good system is beneficial if customers need to consistently pay their invoices. Paid invoices add a lot of unneeded friction to the operation of a small business, and it can choke your cash flow. To incentivize prompt payment, many businesses offer clients payment options, including small discounts for full payment within a certain time frame. 

Keep A Close Eye On Your Books.

It’s much easier to manage your business loan when you have a solid grasp of your finances. That's why it's important to closely monitor your books every month. Doing this will give you a snapshot of your business's financial health and typical cash flow. It’s also an opportunity to look for unusual patterns or oversights. 

Do this even if you’re working with a professional bookkeeper. Reputable professionals will be happy to review the books with you and answer any questions you might have. 

Use Extra Cash for Extra Repayments.

Think of your monthly payment as the minimum amount you have to pay each month. Consider putting that cash toward repaying your business loan when you come into extra money from a tax return or a significant revenue bump during peak season. Making extra payments will save you a lot in interest and can shorten the term of your loan. 

Round Up the Amount Per Payment.

An easy way to accelerate your loan repayment is to round up your regular payment amount. If your payment is $3,650, consider rounding up to a flat $4,000. This relatively modest increase will allow you to pay back several extra thousands of dollars a year and will really add up over the life of the loan. Plus, it’s an easier number to remember and faster to write on a check.

Don’t Take On More Debt Unless You Really Need It.

Business loans help you scale your company without painstakingly building revenue to fund your expansion but use them in moderation. 

Getting a loan can be pretty easy, but don’t take on more debt than you need, especially if you’re struggling to pay your existing business debt. Even a small amount of extra debt can impact your ability to make timely payments.

If you need to take out another business loan in the future, a low debt-to-service-coverage ratio will make that much easier.