A business loan can help a business grow. It can be used to finance the purchase of new equipment, afford inventory, or manage cash flow. Conversely, as a business owner, you may experience reduced cash flow for a myriad of reasons, including slow-paying customers, the cost of extra staff, or a delayed return on bulk-purchased goods.
However, sometimes a business loan can cause additional strain. The good thing is that there are many debt reduction strategies. Here are some approaches for consideration.
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1. Create a repayment plan
Before applying for any business loan, it’s important to know what your obligations are and determine whether you can actually afford to take out a loan. This includes assessing the businesses profit and losses, assets and liabilities, turnover and cash flow. It’s wise to do this in conjunction with an accountant.
Once you determine that the business can afford the loan, it’s helpful to put a repayment plan in to ensure you start (and stay) on track. The repayment plan should be done in conjunction with a monthly budget that takes into account all your loans, overheads and expenses. This should be reconciled with your accounts payables and receivables (again – an accountant is well placed to help with this). It’s also important to consider how the budget can be adjusted (for instance, to accommodate seasonal purchases).
2. Increase your revenue
The most efficient way to pay off a business loan is to increase sales. This may be through offering new products or services, or extending business hours. It may also be time to consider additional marketing activity to support attracting more clients and generating more sales. Whatever method, the goal is to gain more profit that can be redirected to support loan repayments.
3. Reduce your business spending
Increasing revenue isn’t the only means to grow profit margins. Cutting down on business costs can also improve profitability. This means checking on fixed and variable expenses and seeing if the business is spending more than it needs. If you’ve made a monthly budget, you’ll be able to quickly identify unnecessary costs that can be removed from the budget.
Managing and reducing costs often has an immediate impact. It’s a reliable way to earn more and save for repayments. Also, keep in mind that you can reduce costs by negotiating current deals, adjusting inventory, switching to different suppliers, or leasing equipment to cut business spending. Even after the debt is repaid, it’s best practice to maintain tight control over business expenses.
4. Consider refinancing your loan.
Refinancing refers to taking out a new loan to pay off a current loan at a lower rate. It allows the borrower to replace their current loan with one that has more favourable terms. This can be a good option to either reduce the repayment amount or receive lower interest rates – either way, it helps to pay off the debt sooner.
The good news is that many lenders provide refinancing products, including traditional lenders, non-bank lenders, fintech or specialist lenders like Mango Credit. This established short-term lender has helped many Australians and businesses get out of the bind and take advantage of time-sensitive opportunities through business loans, bridging loans and fast caveat loans. They are also renowned for being transparent with fees, with competitive interest rates and provide the option to apply online, with minimal documentation.
5. Negotiate terms with your lender
It never hurts to approach your lender to discuss your options, including renegotiating debt terms to ease interest rates or extend the payment period.
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