5 Tips for Efficiently Managing Small Business Loans

As useful as loans can be, they can be hard to manage. Here are some tips for managing loans and staying out of financial trouble.

Did you know that in 2018 the average business loan was $663,000?

This means that people are borrowing and investing in small businesses more than ever before.

Small business loans can be a blessing or a curse. They are a blessing if they cause the business to flourish and fulfill it’s potential. They are a curse if the business or market does not respond as planned and expansion is not realized.

The success of borrowing is strongly dependent on the planning that goes into this investment. If you are considering taking out a loan, what can help you manage your loans and stay out of financial trouble?

Check out our list of 5 tips for efficiently managing small business loans.

1. Properly Manage Your Accounting

Before you look to apply for a business loan, get a good grip on your current financial situation and cash flow.

Small businesses often start with an adequate recording of income and outflow and a small number of employees. However, when the business grows, the tools to manage it may not.

To decide on taking out a business loan, the owners of the business need to know the current state of finance. More than this, they need to know the potential of the business.

This is more than just housekeeping and compliance. Based on this information, the company will decide whether to borrow, and if they do, they will borrow enough to progress the company effectively.

Whilst the beloved Excel may have been sufficient for the initial stages of the business. It often quickly becomes apparent that financial software will give more considerable and more accurate insights into the current state of affairs.

2. Don’t Wait Too Long 

When contemplating taking out a business loan, fear or lack of experience may cause you to delay the application. However, waiting too long can have a negative influence on your business.

You may initially want to take out a loan to give your business vital expansion capital. After waiting too long, however, you may need the same money to cope with financial losses because you did not expand quickly enough to meet demand.

This is exactly the time when institutions will not want to lend to you. Your hesitation in taking out the loan has cost you business expansion, damage to your credit score and in the end, profits.

Even a small slump in your business can lead to banks construing this as a lack of stability in your business, and even a faulty business plan.

Take the plunge and apply for the loan while your finances are in good shape. You will be eligible for more money and will be able to keep your business moving in the right direction at the right time.

3. Show Proof That You Can Repay the Loan

You may believe strongly that your business plan is solid. Your market research may indicate that the sector you are investing in will provide returns. In this case you will need to clearly state this to the potential loan provider.

As part of your application for the loan, state clearly the positive aspects of your financial history. This naturally would include repayments of previous loans.

The most powerful proof that you can repay the loan is collateral. Cite current assets such as real estate or property that is of equal or greater value to the business loan. This is a guarantee to the lender that you can pay back the loan and may make or break your application.

Next, clearly indicate your plan for meeting repayments for the loan you are applying for.

Even if this is the first, or one of the first, small business loans you have applied for, you should be able to provide projections regarding payments. This proves to the lender that your feet are on the ground, and that you understand that your priority is loan repayment.

4. Do Your Homework

Before you approach the financial institution, do your homework to ensure you will be given the amount that you are asking for.

Have your case ready. Have a bulletproof business plan that you have confidence in and can defend if needed. As far as possible clear any problems from your credit history. This may require you to research your history and iron out any errors or finalize any unfinished business.

Gather both personal and business assets. This will prove to the lender that you can handle money and that you will have the means to repay the loan.

Build a relationship with the lender even before you loan the money. This is only one of the advantages of loaning money from an institution that you bank with. On the other hand, you can work to be a successful repeat customer at another credit establishment.

5. Invest and Grow Your Business

Refinancing a company regularly can leave a negative impression regarding the reputation of a company. So, when you loan money, invest, and make it count.

Typical examples of substantial investment are

  • Hiring employees to meet a specific demand
  • Purchasing inventory or equipment in order to meet production demands
  • Opening a new office or retail space to expand production or design capabilities

While these might seem like substantial investments that require large loans, equally they may take your business to a level where this year’s loans seem tiny in comparison to the success accrued.

When You Need More Than Help with Small Business Loans

Whilst small business loans can give you the financial boost you need; often, a more substantial solution is needed.

Since our inception in 2011, we have been helping small businesses everywhere to make significant progress by providing sound financial advice. We are founded by experienced business and risk management professionals that have plied their trade internationally.

Why not check out some businesses that we have provided investment capital for. You will see how we can help you to focus on what is really import – growing the greatest business you can.