After spending some time identifying and applying for the best small business loan, the goal now is to retire the debt sooner rather than later. Fortunately, there are several things you can do to whittle away at the loan balance and pay it off well before the due date. Try these strategies and watch your balance decrease.
Assuming the terms and conditions of your loan allows this strategy, set a goal of making half-payments every two weeks. What does this accomplish? By the end of the year, you will have made the equal of 13 payments rather than 12 monthly payments. On a five-year business loan, that allows you to settle the debt five months before the original due date.
Depending on how the interest is applied to the loan, this approach also reduces the amount of interest you pay over the course of the year. That means more of your payments are applied to the amount you borrowed. Reducing what is known as your principal also hastens the day when your loan is settled in full.
The lender usually doesn’t mind if you pay a little more than the exact monthly payment. When you apply for a business loan and find that the monthly payments will be something like $1,240.32, resolve to pay $1,250.00 each time. This approach also allows you to reduce the interest paid over the life of the loan and chips away at the principal a little faster.
If you have the good fortune to sign on a new client and see an upswing in your monthly net income, consider using it to make a few extra payments. Even making one extra payment every quarter will translate into remitting four additional payments per year. If your loan term is for five years, that means you can retire the loan much faster.
When you applied for business loans, did you find that the lender offers some incentives if you opt for electronic statements versus statements sent through the post? Some lenders will provide small discounts for anything that saves them on administrative costs. If you can reasonably claim those discounts, those small amounts will help you retire the debt sooner rather than later.
Remember that being a little ahead in your payments never hurts. If the company should have a month or two when the cash flow is less than usual, knowing your loan is three or four months ahead of schedule is a comfort. When you are fortunate enough to see your company net income increase a little every month, making more progress toward settling the loan will help to boost your business credit rating. Set a goal today to always make payments on time and make a few extra every year. In the long run, you will save the business money, improve the credit score, and find it possible to negotiate even better terms when you need another loan.
Advice and research for Canadian small businesses from our expert team