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7 Effective Tips for Managing SME Loan Repayment
Like every small or medium-sized enterprise (SME) owner, you must have taken a loan or two to grow your business, expand operations, or overcome financial burdens. An SME loan is for sure a great option when you are faced with a cash flow crunch. However, along with securing the required capital, small business owners also have the responsibility of timely loan repayment.
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Usually, everything goes well, until you are faced with unexpected cash flow roadblocks, lose major contracts, or take on a large-scale project. That’s when you start missing out on your SME business loan repayments, leading to profound consequences that can affect you in the long run.
But the good thing is by following some proven business loan management tips and adhering to the right type of loan repayment methods you can manage your repayments in a stress-free manner.
7 Strategies for Managing Business Loan Repayment:
Understand Your Loan Terms
Do you know your outstanding loan balance? Do you understand interest rates clearly? Or do you know about repayment frequency? If the answer to these questions is no, then it’s time you open your loan account and familiarize yourself with your loan terms. Before you can effectively manage your business loan repayments, you need to have a good grasp of your loan agreement to avoid any surprises later on. In case of any doubt, don’t hesitate to contact the bank you have taken a loan from for further clarification.
Create a Repayment Plan
Create a well-structured repayment plan by carefully assessing your cash flow. Based on your cash flow analysis, you can then understand your repayment capacity - the maximum amount you can comfortably commit to your loan repayments each month. This will ensure that you don't miss any payments due to a lack of available cash, which could lead to late fees, penalties, or even defaults. You can also consider automating your payments, further minimizing the chances of you missing payments.
Suggested Read: 7 Strategies Of Sme Business Loan Repayment
Make Extra Payments Whenever Possible
Consider making extra payments than your usual monthly EMI whenever you have extra cash. Though, we understand you might get the urge to invest the extra money in any business expenditure, paying extra will not only help you save on interest rates but will also help you repay your loan earlier.
Consider Consolidating Loans
Do you have multiple loans? Is it becoming difficult to keep track of multiple loan repayments? If yes, then you can consider debt consolidation. Debt consolidation is a term used when you take one loan to pay off all the other debts. This can help you possibly get lower interest rates and simplify your repayments with fewer bills to pay each month and fewer due dates to worry about. However, before you go for this option, ensure that you don’t end up paying more interest rates than before.
Reduce Unnecessary Expenses
Review your expenses and try cutting unnecessary costs wherever you can, without compromising the quality or efficiency of your business. Every extra penny you save can be utilized towards your loan repayments, helping you repay your loan more quickly and effectively. Some SME owners forget about their repayments and focus on their personal expenses, which ultimately leads to missed repayments.
Suggested Read: 5 Easy Ways To Control Overspending
Avoid Taking More Credits
This whole exercise of trying to manage your SME loan repayments will be futile if you take on more debt. Taking on more debt when you already have many loans to repay can lead to increased interest payments and make it harder for you to manage your finances. So, focus on paying down existing debts rather than accumulating new ones.
Communicate With Your Lender
If you find yourself unable to meet your monthly repayments, immediately contact your lender and communicate with them your problems. The lender might be able to help you by pausing your payments or reestablishing a new repayment plan if you expect your condition to not improve anytime soon. In worst-case scenarios, you can negotiate with the lender to offer you a debt settlement, where you pay back only a part of the loan. However, a debt settlement can negatively impact your credit score, making it difficult to get a loan in future.
Conclusion
In conclusion, effectively managing your SME loan repayments is crucial to maintaining financial stability and ensuring the long-term success of your business. By following the above-mentioned tips, you too will be able to navigate the challenges in repayment with ease and confidence.
If you have a robust repayment plan in place and are ready to apply for an SME loan, then consider Muthoot Finance. As a reputable NBFC, we offer competitive interest rates, as well as easy eligibility for MSME Loans. Additionally, our online repayment options make timely payments easy and help avoid late fees or penalties.
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