3 Ways to Strengthen Business Loan Repayment

Congratulations!!! After much duration, paperwork, and due diligence, you (and your team) were able to obtain a business loan to help grow the business. Now what? After the loan proceeds are deposited into your bank account, what should be your next thought beyond spending the money? Honestly, not much thought is given to the obvious: how will this loan repayment affect the business? I would offer that during the pre loan approval stages, some thought is given to this, but when the money has been released and spent, little if any concern about repayment is made until it becomes a problem. My desire in this article is to equip you with 3 ways to strengthen repayment of the business loan so that it does not become a problem to you or your business.

Number One: Have a Clear Understanding of the Loan’s Terms

Money has a tendency to blind us from common sense especially when we’re in need of it. Business owners are no different. The sheer excitement and feeling of accomplishment in obtaining much-needed capital can overshadow the concessions one makes to get it. Rather than being captivated completely by the “Yes” or “No response, be sure that the loan terms are acceptable to you and your business. Don’t agree to something you won’t be able to perform and / or accomplish over the agreed upon term of the loan.

Number Two: Project Short Term Cash Flow

Yes, I know, math. Sometimes the mention of the word gives most people an upset stomach. If that’s the case, take some Pepto-Bismol and get to work. You’ll be thanking your lucky stars you did. I’m not recommending here a full-blown, comprehensive cash flow analysis, but I’m proposing that you compile a realistic analysis of how the loan impacts incoming cash and outgoing cash in terms of repayment. Based on the terms, what’s the frequency and amount of repayment? Remember, you have to add this repayment amount to fixed overhead as opposed to being a variable cost.

Number Three: Plan For the Worst and Have a Plan B and C

Life is organic and no matter how precise we plan, there always seems to be a curve ball. It’s no different with the repayment of a business loan. Yes, during the pre approval due diligence stage, there’s a mutually agreed upon repayment structure that more than likely includes collateral (real and / or personal property), but life happens and the plan can get off track. What’s the remedy for this? Always have a plan b, and even better if you have a plan c. What do I mean? Well, if the first option for repayment becomes invalid, then you need to have a different cash flow source of repayment via earnings, asset sale, or an infusion of invested capital.

In closing, remember to think ahead when you’re approved for a business loan and consider thoroughly the impact of repayment on the business cash flow. The last thing you want to do is not think about it because ultimately business loans are required to be repaid in full with interest OR ELSE.