It’s not uncommon for business owners to take out a loan to cover their business’s startup or operating expenses. Without capital, businesses are destined for failure as they cannot cover basic expenses like payroll, inventory, equipment, and marketing. Though, after taking acquiring a loan, business owners should pay it back according to the lender’s terms. Otherwise, they risk ruining their business’s credit.
Review your budget
To reduce the risk of delinquency, business owners should review their business’s budget and eliminate unnecessary expenses. Whether it’s a professional cleaning service, an extra fax line, or new office furniture, owners should consider cancelling any service that’s not essential to their business’s operations. By freeing up this capital, business owners can make larger payments towards their loan.
Collect outstanding invoices
Business owners in need of immediate capital to pay back a loan should contact clients with an outstanding balance to request payment. If a business allows customers to pay after their product or service has been delivered, there may be outstanding invoices. Collecting payment on these invoices can provide business owners with an influx of cash, which they can use to pay back their business loan or utilize in another area of the company.
However, collecting payments from customers isn’t always easy. According to a survey conducted by Atradius, nearly one-quarter of businesses said collecting payments on outstanding invoices are essentially assets for businesses. There are certainly easier ways to turn outstanding invoices into capital, such as factoring. With factoring, the business owner sells his or her business’s outstanding invoices to a private investment company, typically for a lower price than the invoices’ face values. The investment company then takes the responsibility of collecting payments from the business’s customers. Any payments collected are kept by the investment company. This method allows the business to gain some money, but also get rid of the worry of collecting invoices themselves.
Talk to the lender
Some business owners avoid talking to the lender when they miss a payment. Rather, they ignore the lender’s calls, hoping the problem will go away. Talking to the lender can actually help a business owner pay back his or her loan. Many lenders will waive fees or even lower the interest rate on the loan so that it’s more manageable. Creating a positive relationship with a lender and utilizing communication can lead to more leniency if there are any missed payments or issues.
Borrowing money is a routine part of running a business, but it’s important that business owners pay back these loans. Missed payments often result in late fees as well as negative marks on the business’s credit. So, business owners should follow this advice to pay back their loans and maintain good standing as a company.