Securing a business loan can be a stressful and tedious task. Applying for one is already an arduous process, and once it is approved, there is little time to celebrate. Business owners need to learn how to manage expenses and debt while accomplishing other company-related tasks.
Finances play an integral role in any business. If you fail to manage your business finances properly, you risk losing money due to piling debts and excess spending. Aside from losing money, you won’t be able to track where your money goes. This can lead to significant losses, preventing your business from growing.
If you find yourself in this situation, this article will provide you with the necessary insights to stay on top of debts while growing your business.
Top Tips on Managing Your Business Loans and Finances
Below are some useful tips on how to manage your business finances and loans, and how it ultimately benefits your business.
- Track your balance and spending
Having a well-organized financial plan or spreadsheet is a straightforward way to track your balance and spending. One thing you should avoid doing is co-mingling personal and business funds.
If you don’t separate your business and personal accounts, you may be personally liable for business debts and miss out on some tax benefits.
Having a separate account helps you analyze the ins and outs of cash in the account. If it’s mixed with another form of expense, such as business capital, it may confuse you when checking the account’s cash flow.
A dedicated account for a specific project can allow you to easily see how much money is funding this project, creating a more organized setup.
- Pay more when possible
Different industries have a peak season when the business is booming. Sales increase during this period, which is an excellent opportunity to pay down debts.
The last thing you want as a business owner is to be drowned in debt. Using this peak season to settle what you owe with minimum payments is a great tactic to save money since cash flow is higher. If you can pay more than the minimum amount, even better.
After settling your fixed expenses and debts, you can put the excess cash into an emergency fund to help stabilize your company’s future.
- Look into business growth opportunities
It will help if you’re always on the lookout for trends and new assets that come into the industry. Whether it’s a service or a product, riding into the right trends can help you attract new customers. Investing in the company’s growth for the long run can elevate the business while building and moving finances in the right direction.
Additionally, the more you invest in the company, the more likely your employees will be satisfied. It shows them that you exert effort in providing the business with opportunities to grow while accounting for their needs.
Furthermore, consider other loan options for growth. You can purchase cars and trucks you need to keep your business rolling through an auto loan or truck loan, or refinance your vehicle which could lower your monthly payment or the interest you pay.
- Avoid new debt
Accumulating too much debt can lead to disastrous consequences, such as being overleveraged. This is when you’re carrying too much debt compared to your operating cash flows and equity. You also impede your ability to make principal and interest payments and cover operating expenses.
Business loans are essential to allow you to invest in your company, but you should always try to pay them off on time and to the highest amount possible to avoid more debt and hefty interest rates.
- Maintain good business credits
If you have a high enough credit score, you can try to negotiate with your lender for a reduced minimum repayment or a way to pay off your loan faster. The factors that affect your credit score include payment history, types of debts, number of applications, and credit history.
- Communicate with your lender
Communicating with your lender is a responsibility you have as a business owner. Avoiding phone calls and letters from them can result in a lack of trust, preventing them from offering you more options for your financial issues.
It’s best to be honest with them and let them know your financial situation. It shows the lender you are willing to work with the given case, leading them to offer you several options to help sort out your finances more easily.
- Limit the number of loans
For small business owners, it would be a poor business move to apply for numerous loans. This can lead to loan stacking, where you take out multiple business loans from various lenders simultaneously.
Loan stacking can be disadvantageous to entrepreneurs when they cannot sustain too much debt. It can add pressure to their business’ cash flow and create a negative debt cycle.
In most cases, the risks of loan stacking outweigh any potential benefits. The more loans your business has, the less money you have to reinvest.
As a solution, you can consider approaching your current lender for more funding, seeking complementary loan products, or refinancing through another less expensive lender.
Research and Management Matters.
Just like a collateral loan, auto loan, or any online loan in the Philippines, business loans require evaluation and research. Understanding your company’s financial position, what assets it needs, and how much funding you require can help you better manage your loans and finances.
If you ever need extra funding, don’t forget to thoroughly look into the lender’s qualifications. This can increase your chances of approval and establish a solid relationship with the lender.