Worried About Your Small Business Loan Repayment? Here’s What You Can Do

Debt is a liability and the sooner it is cleared the better. Loan repayment is all about meticulous financial planning and money management. Usually, repayments for business loans start from the month after the disbursement. However, it could vary depending upon the lender, the type of the business loan and the loan structure.

The repayment involves a series of scheduled payments, or equated monthly instalments (EMIs). The EMIs include both principal and interest amounts.

Borrowers can either visit the physical branch of the bank to deposit a cheque or can choose an online mode of repayment like UPI, NEFT, electronic clearance or internet banking.

Why Loan Repayment Is Necessary?

Regular business loan repayments reduce the liability of the borrowers. Timely repayments also help the borrowers to maintain and even improve their credit score.

On the other hand, irregular repayments can impact the borrower’s credit history and credit score. A borrower’s credit history with one bank is visible to other banks through the credit report.

Applicants with poor credit history can be looked upon as risky customers by banks. This, in turn, will make it difficult for such applicants to take loans in the future.

In the case of secured business loans, where the borrowers keep collateral, a default can lead to confiscation of assets by the lenders. Banks can also take legal actions against the defaulter to recover their loans, both in the case of secured as well as unsecured loans.

Tips To Repay The loan

Borrowers should strive to pay their loans in a timely fashion and as agreed upon with the lenders. Whatever be the mode or schedule of payment, here are a few tips that can help borrowers repay their loans successfully.

A thorough estimate:

Prospective borrowers should borrow only what is required, and what they can easily repay without stretching their finances.

Excess borrowing can impact the repayment schedule. It will be wise to optimize the available resources, avoid unnecessary expenses, and plan small business loan repayments on a regular basis.

Increase EMIs At Regular Intervals:

High interest on a business loan amount means additional money. A smart way to reduce the interest burden is to pay a little extra whenever possible. Increasing the size of the EMI at regular intervals will help small business loan repayments get over soon.

The extra money can be managed from business profits or by cutting down unwanted expenses. If a business for which the loan is taken is not making a profit during an off-season, additional repayment can be paid during the busy season.

However, before repaying the extra money, applicants must take into account the prepayment fees or foreclosure charges. Also, the enthusiasm to finish off the loan early should not cause a cash crunch for the business.

Set-Up An Auto-Pay:

The auto-pay functionality is a convenient option for scheduled payments. In this system the outstanding amount of each billing cycle gets automatically deducted on the due dates from the bank account or credit card.

Debt Restructuring And Refinancing:

In the event business owners are unable to make repayments and are facing a default, they can apply for debt restructuring. This is a process to change the existing terms of a contract, such as the tenor, the EMI or the interest rate. However, loan restructuring can affect the credit scores negatively.

If the business is facing liquidity issues, a better solution could be to refinance the existing debt with a new one from another lender. Refinancing can help lower interest rates and reduce the overall debt burden.

Conclusion

Challenging economic conditions can make loan repayments difficult. In the wake of a crisis, a number of measures can help borrowers pay back their business loans.

Businesses that face difficulties in scheduled debt payments can transfer the balance loan amount to another lender or renegotiate with the existing lender for loan restructuring. Managing the existing debt through refinancing can be cost-effective in the long run.

Nowadays, most banks and well-known NBFCs like IIFL Finance help borrowers with a loan repayment plan that can help them understand their debt and how to utilize extra income to clear off the debt early.

IIFL Finance also allows prepayment and foreclosure of loans after paying nominal fees. It also allows partial payment of up to 25% of principal outstanding on business loans. In addition, IIFL Finance also customizes the loan repayment schedule for borrowers to help them make payments as per their cash flow cycles.