5 Small Business Loan Repayment Strategies

Written by Banks Editorial Team
5 min. read
Written by Banks Editorial Team
5 min. read
Your small business loan repayment plan is only as good as your commitment to following through.

Once you get funding, it is critical to follow small business loan repayment strategies to make sure you make all payments on time and in full. You do not want to miss a payment, get behind, as this may then incur in all kinds of fees.

Your small business loan repayment plan is only as good as your commitment to following through. Sometimes repaying a loan is challenging, even when you are generating revenue. The following small business loan repayment strategies will help you stay on top of your plan to keep your lenders happy and make sure you stay in business.

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Small Business Loan Repayment Strategies

1. Document Your Loan Repayment Plan

How long will it take you to repay your entire loan? How much faster could you repay that loan if you paid an extra few hundred dollars each month? Would you incur any fees for early repayment? Would those fees be worth getting your loan handled faster?

Knowing exactly when your loan will be repaid in full – and how much you will end up paying in fees – is critical. That final repayment date will likely change over time, but you need to keep track of that date to avoid falling behind. Don’t just make your monthly payments without knowing exactly where each payment puts you in terms of completing your obligation.

Take a day to document your entire plan and your small business repayment strategies. If you make all of your payments on time, when can you expect to have your loan paid off? Pinpoint a specific date.

Next, add your loan repayment obligation to your budget ahead of time. Don’t wait until the current month to add in your payment. Make your monthly budgets ahead of time and prioritize your loan payment as a non-negotiable expense.

2. Document Your Loan Terms and Post It on Your Wall

Knowing the terms of your loan is critical, but it’s hard to remember everything you read. To make it easy, type up the terms you need to remember and post them on your wall wherever you work. It’s old-fashioned, but it works.

Remembering loan terms is especially important for small businesses accepting the Paycheck Protection Program (PPP) loan in the U.S. If your business is struggling because of coronavirus shutdowns, the PPP loan will give you up to 2.5 times your monthly payroll at an interest rate of 1% with deferred payment for 6 months. The best part is this loan will be forgiven if the funds are used for expenses like payroll, rent, mortgage interest, and utilities.

To get your PPP loan forgiven, experts advise small businesses to get a payroll service, keep your loan funds in a separate bank account, track every penny spent, get a CPA, and if you’re established as an S-Corporation, start paying yourself a salary instead of taking out distributions. Paying yourself a salary will be forgivable while distributions will not.

If you took out a PPP loan, post the terms on your wall and don’t lose sight of that 6-month mark.

3. Manage Your Business Expenses Frugally

Managing your business expenses frugally is directly tied to your ability to repay your loan. You can’t repay a loan if you don’t have any money. If you don’t carefully watch your expenses, you’ll spend money unnecessarily that could have gone to repaying your loan(s).

There’s nothing wrong with being frugal in your business. Running a business isn’t about keeping up with the competition in terms of getting a large office, hiring a full-time team, and going to all the industry conferences across the world. You don’t gain anything by spending more just to look good and appear successful.

When you’re obligated to repay a loan, revenue that comes in isn’t 100% yours. Stick to a tight budget and try to thin it out even more. For example, if you’re renting a shared office space to work, ask yourself if you really need to work in that space. Can you work at home instead? If you absolutely need to work behind a closed door, can you turn your bedroom into an office and sleep on the couch for a while?

Small sacrifices can save hundreds or thousands of dollars that can be used to repay your loan faster. Once your loan is paid off, your revenue will be entirely yours (minus your bills, of course).

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4. Invest in Cyber Security

How does investing in cyber security help you repay your loan? Millions of small businesses are targeted by hackers every year. Unfortunately, small businesses are a hacker’s number one target since most small businesses don’t have high-tech, tight cyber security in place.

According to statistics, the average data breach in 2019 costed $3.92 million. In addition to paying hefty fines, if you become the victim of a data breach that harms your customers, you’ll be subject to hefty fines. If you can’t afford to pay the fines and repair the damage to your business, you’ll probably have to declare bankruptcy and go out of business.

Investing in strong cyber security protects your small business from the financial damages caused by cyber criminals. When you’re unprotected, in addition to data breaches, you’re vulnerable to the following types of attacks:

  • Malware attacks. Without strong cyber security, there are a multitude of types of malware that can end up installed on your company’s computers, including employees’ personal and work devices. Malware can destroy files, hardware components, provide the hacker with remote control over the victim’s computer, and can also install a keystroke logger.
  • Ransomware attacks. Ransomware attacks are probably the worst form of cyber attacks. When a cyber criminal installs ransomware on your company’s server or your employees’ devices, all files become encrypted and inaccessible. A message will pop up demanding a payment in exchange for unlocking the files. You can make the payment but there is no guarantee your files will be unlocked.
  • Botnet attacks. These attacks are somewhat unknown by many small businesses. First, cyber criminals gain control over unsecured devices connected to the internet like smart televisions, smart assistants, and smart video surveillance systems. Then, the criminal uses those compromised devices to gather more devices until they have control over an army of devices. They use the army of devices to launch DDoS attacks against their main target, usually a large corporation’s web server.

    In an attempt to stop the botnets, some hackers have launched their own campaign to ‘brick’ as many unsecured devices as possible – permanently. What that means is if you connect your brand-new smart security system to the internet without changing the default password, and your system is discovered by one of these hackers, it will get ‘bricked.’ When a device is bricked, it is permanently destroyed.

5. Have a Strict Purchase Approval System

Until you are free from loan repayment obligations, all business purchases should require your direct approval, no matter how small. If you give employees the freedom to spend company money without approval, those small purchases will add up quickly; that’s money you could have used to repay your loan faster.

An expense approval system is easy to create. Open up Microsoft Word and create a form with the following fill-in components:

  • Name of employee making the request
  • Date of request
  • Specific name of what is to be purchased
  • Description of what is to be purchased, including how it will be used and why it’s important
  • The total cost of the purchase and whether it’s a one-time fee, monthly fee, or yearly fee
  • Anything else important you need to know before approving or denying a purchase

Require employees to submit this form and get approval before making any and all purchases. This includes switching software brands (like moving from Constant Contact to MailChimp or moving to a new web host).

Don’t be afraid to deny purchase requests on a regular basis. However, when denying a purchase request, give employees a chance to explain their needs in more detail. You may not understand why a certain purchase is necessary simply because it’s not your area of expertise.

Find and Apply to a Small Business Loans

Finding the right small business loan can be stressful. However, applying for a loan online with banks.com is easy. Just fill out one application and you’ll get offers from multiple lenders so you can choose the loan that’s right for you.

With banks.com, you can apply for a variety of loans including short or long-term loans, equipment loans, ACH loans, or even business lines of credit. Apply today and get your business funded fast.

The Takeaway

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Repaying a small business loan can be challenging, even if you are generating revenue. Follow your small business loan repayment strategies like the above to help you stay in business while keeping lenders happy.

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