Manage Business Loans Effectively - Business Loan Blog - Tata Capital

5 Tips to Manage Your Business Loan Effectively

Mar 07, 2017

Excitement-that's often the first feeling you get when the bank says your loan has been granted. Even Satish felt the thrill of excitement go up his spine when the bank granted him a business loan.

He would finally expand his office space and buy new equipment. This would help him recruit more people and grow his business.

But, he was also careful in managing the loan. He had heard stories about how businesses suffered when the owners failed to manage the loan well. So, Satish kept a checklist handy to manage his loan for business efficiently. This proved to be beneficial in future.

If you have taken a business loan or plan to, then read on. Satish's guidelines will help you manage your loan effectively too.

1. Keep the lender in the loop

Remember to inform your lender about all the major happenings in your business. Whether you make a sudden profit or run into a loss, tell your lender about it. Communication establishes a sense of confidence in the lender and improves a relationship. It is vital to have a good relationship with the lender at all times.

2. Do not miss payments

This may sound obvious, but it is an important point if you have an open business loan. You have to be disciplined about repaying your loan. Do not miss even a single EMI payment. Suppose you cannot pay the entire amount in a particular month speak to your lender and fix a minimum balance that you can pay. This is necessary to maintain your credit history and your relationship with the lender.

3. Pay extra when you can

If you have a sudden windfall in your business, pump in extra money into your loan account. It is a good decision to pay off as much as you can and reduce your liability. That said always compare the interest rate of the loan with the possible savings rate. If you can earn more by investing the money, then do that. Put the money in a fund. Use this fund to pay the EMIs at a later month when your finances are tight.

4. Use the capital effectively

Why did you take the loan? There must have been a reason relating to your business, right? Stick to it and make wise use of the money. Do not ever use the loan money to fund your personal or other expenses. Do not use it to pay off an existing debt. Doing this may harm your business as well as your reputation as a businessperson.

5. Make a budget

Stick to a budget. This is a good way to manage your loan. You will then know exactly where you are spending the capital. You may have to invest a certain percentage of the capital, or use a part of it to make a down payment. Or, you may need a part of it to organise a conference. It is better to hire a professional to prepare the budget for efficient allocation of funds. This will help you cut down on unnecessary expenses.

Conclusion

Follow the guidelines mentioned above to manage your business loan well. All you need is a little discipline. If that is in place, your loan management skills will automatically come through.