As a business owner, there is no mystery that external borrowing sources are a regular aspect of your business operations. But for any business to flourish, staying on top of the debt has to be the priority. No business can grow until all the debts are settled completely. Perhaps managing debts is of utmost importance, which begins with managing corporate loans.
This article is carefully curated to help you cope with business finance troubles and provide you solutions that can be your way out of debt. Following are the six approaches to consider for your business if you want to get rid of high-cost short-term loans.
Do Your Homework
Some leg work is a must before acquiring a loan. It will be worth it when you manage to score a loan with the least possible interest rate. Amidst the countless available options today, finding a low-interest rate from a legit lender is possible only when you have done your research thoroughly.
Some businesses can easily survive while dealing with short-term high-interest loans, but this can’t be the case for all. If your business qualifies for a long-term low-interest rate, why do you want to waste unnecessary money paying high interest on short-term loans? It doesn’t seem a wise decision. So, doing your homework means searching for the right potential loan and the best interest rate that fits your situation.
Find a cheaper workaround
It becomes difficult to keep hold of EMI’s and interests when you have many loans to take care of. If, by any chance, you happen to miss even a single EMI, then it will cost you a penalty along with a bad credit score.
If you have several loans to deal with, consider consolidating the entire mortgage, which means merging multiple debts into a single loan. This concept of refinance is to acquire a loan with a significantly cheaper interest rate than that charged on current loans. Besides the super low interest, a single loan would make it easier to repay. You can check mortgage rate forecasts for a better understanding of mortgage rates.
Prioritize Expensive Debts
Prioritizing the loan repayment can be lifesaving. Consider all the unpaid debts and select the ones you need to deal with first. It is highly suggested proceeding with pricey loans like personal loans and credit cards, which would dramatically ease the interest pressure.
Be sure you spend the highest amount you can manage on a high-cost loan without impacting other debts’ repayment. When you’ve finished the pricey line of credits, switch on to the next one in your priority list. This strategy is known as the “debt avalanche.”
Increase Repayments as Income Increases
Whenever there is an increased flow of earnings, be sure to use it carefully for debt reduction. Raise your EMI with the rise in your income because the slightest increase in EMI will help you save a great deal of money. Ignoring the influence of the smallest rise will not allow you to reap the maximum advantages.
Leverage Windfall Gains for Repaying the Loan
Windfall gain is nothing but unexpected gains in income, such as winning the lottery, unforeseen inheritance, huge bonuses, income tax refunds, proceeds from life insurance policies, etc. If you happen to receive any, then show your smartness by using them in paying existing business debts rather than splurging unnecessarily.
Note that the borrower can incur a prepayment penalty of up to two percent of the loan’s unpaid value. Central Government bank does not authorize banks to impose a prepayment penalty on housing loans with floating interest rates. However, several banks do so for fixed-rate home loans.
Credit agencies usually do not impose any prepayment interest provided the price paid does not surpass twenty-five percent of the unpaid debt at the starting of the year. If there is a possibility of incurring such penalties, correlate the expense to the saved interest if you plan to pre-pay the loan amount.
Make Lifestyle Changes
Lifestyle reforms are required until all loans are settled. This implies scaling back on luxury items and needless purchases, avoiding credit cards, opting for cash transactions, and more. This would automatically reduce the tendency to splurge. After all, it’s always the trivial stuff that goes a long way in keeping the finances in perfect shape.
If you handle your loans successfully, you will unlock the gates to potential opportunities to expand your company. At the end of the day, it’s not only about securing loans; it’s about skillfully managing and repaying loans, ensuring a decent credit score and a positive future for your business.