Starting a small business is an exciting time. In order to launch your product or service, you might need to take out a small business loan. However, before you sign your name on the contract, you need to make sure that you can manage credit loss and pay back your small business loan.
Make Payments on Time
There are many reasons to make your payments on time when you take out a small business loan. One reason is that it helps you avoid late fees. Fees and penalties can send you into a debt spiral. Making your payments on time also helps you get a lower interest rate on loans. Even if you’re not able to negotiate a lower interest rate on your current loan, you’ll have the power to do so if you need a loan in the future.
Think About Your Credit Risk
Understand what your credit risk is to lenders. This gives you some insight on your interest rate. As an entrepreneur new to business, you may present a higher level of risk to a lender compared to an established small business owner.
Manage Credit Loss
It’s helpful to understand how CECL will affect credit loss before you take out a loan. As an entrepreneur, you might be using your own credit in order to leverage your small business’s ability to get a loan in the first place. If you have any personal financial problems, this could affect your small business credit. Be sure to check your credit report every four months. You could also sign up for a credit monitoring service and get real-time tracking and updates of your credit score.
When You Can’t Make a Payment
There might be a time when cash flow is poor, and you can’t make your loan payment. When you absolutely cannot avoid this, there are a few steps to take. Call anyone on your accounts receivable list and encourage them to pay what they owe you. Consider offering a small discount if they pay any overdue balance to you. Notify your bank immediately if you’re going to be late.
Before you borrow money, spend time planning how you will be able to pay it back. As an entrepreneur, your ability to get a loan and favorable interest rate will be challenging. Making your payments on time will help with your ability to secure additional funding in the future.
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