Every year, millions of small businesses from all across the country apply for business loans. In 2018, the average business loan was for more than $650,000.
Most businesses don’t have enough cash on hand to do things like buy real estate, invest in inventory, or purchase new equipment. So they often utilize loans to get access to things they need and then pay those loans back slowly over time.
If you were just approved for a loan, that’s great. It means your business should have the money it needs to grow soon.
But making the most of your money is of the utmost importance. You need to have a plan for your money set in stone before it shows up in your business bank account.
Make sure you take the right steps with the money you’re borrowing. Here is what to do when you receive a small business loan.
Celebrate the Fact That You Received a Loan
When you first see that the money associated with a business loan has been deposited into your bank account, you might be tempted to spend it right away.
But wait! There’s something you need to do before you do that.
Sit back for a few seconds and celebrate the fact that you received a business loan. Whether you took out one of the SBA loans or went with another option, getting a business loan is a big deal.
It shows that there is someone else out there that believes in your business plan and thinks you can succeed. That should give you a lot of confidence and make you believe in your business even more than you already do.
Use Your Loan for Whatever You Needed It for
Once you’ve celebrated the fact that you’ve officially received a business loan, it’ll be time to get down to business. That is, after all, what you wanted to take the loan out for, right?
Take your loan and use it for whatever you needed it for in the first place. Buy up a bunch of inventory, invest in your first piece of commercial real estate, or use it to give your company the working capital it needs.
This is now your money and you can use it to do whatever you want. But you should, of course, use it for its intended purpose and make sure that it’s able to help your business grow and flourish in the coming years.
By making the most of your money, you’ll be able to earn that money—and then some—back in no time.
Take a Close Look at Your Loan Repayment Terms
The minute you receive a business loan, you’re going to be on the hook for paying it back. Most lenders will give you a month or two to begin making payments, but after that, it’s going to be your responsibility to get the loan paid off.
Hopefully, you have some general idea of what the repayment terms on your loan look like. But just in case you need a refresher, take a close look at these terms. Pay attention to:
- When you’re going to need to make loan payments every month
- How much those loan payments are going to be for
- What the penalty is for making a late payment
You should know your loan terms like the back of your hand before you enter the repayment period.
Add Your Loan Payments to Your Monthly Budget
Small businesses need to create a budget to keep track of their income and expenses every month. They need to add things like loan payments onto their budgets to make sure they’re accounted for.
Add your new business loan payments to your budget as soon as you get approved for a loan. This will make it easier for you to set aside the money you’ll need to pay back your loan every month.
Make Loan Payments on Time Right From the Start
While you’re in the process of paying back a loan, it’s very important for you to make each and every payment on time. Circle the day your loan payment is due on the calendar and do whatever else it takes to remind yourself of your due date.
If you miss a payment, you’re going to be subjected to a series of fees and penalties in most cases. This could throw your whole budget off and make it difficult to pay down your loan that month.
All it takes is one single missed payment to affect your credit score, too. You might see your credit score take a huge tumble when you miss a loan payment, even if you only miss it by a day or two.
It’s good to get into the habit of paying your loan back early every month if you can afford to do it. Some companies will also offer businesses the option of putting their account on “auto pay” so that they can make payments without even needing to think about it.
See How Your Business Loan Affected Your Credit Score
The business loan that you take out isn’t going to show up on your credit score right away. It might not even show up on it within the first month or two.
But at some point in time, your loan will appear on your credit report, and it will likely have some kind of impact on your credit score. It’s smart to keep tabs on how a loan affects your credit score, both now and well into the future.
It’s especially important to keep a close eye on your credit score if you happen to make the mistake of missing a loan payment. You want to be sure a missed payment doesn’t wreak too much havoc on your credit score since it could take a toll on your ability to take out other loans in the future.
Contact Your Lender If You Have Any Trouble Paying Back Your Loan
You shouldn’t struggle to pay back your loan too much right after you take it out. You should be prepared to jump into making payments right away.
But depending on how long your loan repayment period is, there could very well come a time when you aren’t able to make a loan payment on time. You might even be forced to skip several payments in a row in some cases.
Your lender isn’t going to be thrilled to hear this. But you’ll be much better off calling them and explaining the situation as opposed to just skipping payments without saying anything at all.
Most lenders are reasonable enough and will offer you different payment options to prevent you from falling too far behind. Some even have hardship programs in place that could help you tweak your repayment terms to make your payments more manageable.
It never hurts to call your lender up and talk to them about the tough predicament you find yourself in. They might be a whole lot more understanding about the situation than you would think.
Think About Paying Your Loan Back Ahead of Schedule
In a perfect world, you’ll use your business loan to buy something that your business really needs to grow. Your investment will pay off in a big way, and you’ll start making more money than you could have ever imagined.
At that point, you’ll want to think about potentially paying back the money that you borrowed ahead of schedule. Many lenders will give borrowers the opportunity to repay their business loans early if they’re able to do it.
Be aware of the fact that not all lenders operate in this way. Some will charge you a fee for paying a loan back early since it technically causes them to miss out on the chance to make a little extra money on your loan.
But generally speaking, most lenders are open to allowing businesses to pay back loans at any time. Take advantage of this if you’re able to do it and get rid of your business loan sooner rather than later.
Making the Most of Your Money Should Be a Top Priority
Getting a business loan isn’t always easy. There are a lot of lenders that will force businesses to jump through hoops before they’ll even think about extending a loan to them.
It’s why making the most of your money when you get it is such a big deal. The last thing you want to do is misspend the money you receive and miss out on the chance to make your business grow.
Planning ahead and knowing what you’re going to do with a business loan will help you avoid doing this. You’ll be able to put your money to work for you right away and use it to take your business to the next level.
Are you anticipating the approval of a business loan that you applied for at some point in the near future? Read our blog to see some of the things that you can use a business loan for.
Interesting related articles:
- What is a loan?
- What is business finance?