Paying back small business loans (SBL) has become a nightmare for so many entrepreneurs in this millennial age. The research by Main Street Lender on over 10,000 business loan applicants in the U.S disclosed that about 64 percent of applicants were unable to secure any type of financing. About 82 percent of applicants were denied financing by their bank. There are four painless ways to pay off small business loans early.
While several factors make it difficult for small business owners to meet their loan payments, there are unconventional ways to pay off you SBL early and with ease.
#1 Apply for a loan that doesn’t exceed your current business worth:
While getting a SBL from a finance company to expand your business is part of your business plan, working towards paying back what your borrowed shouldn’t be left out.
Interestingly, one of the ways to pay off your small business loan earlier than expected is to apply for a loan within the range of your business worth. For example, if your small scale business worth $4000 and you want to apply for SBL to boost your business growth, it’s pretty much advisable that you apply for a loan within the range of $3000-$4000.
With the loan within your business worth, you’ll be able to manage and track your business growth much better compared to when you apply for a loan beyond your business worth. For example, if you apply for a loan of $6000—this will not only make you think that your business has already increased but might also feed you with the notion that you have excess to spend.
If you’re weak in managing your finances, with time, you might end up finding it challenging to pay off your debt.
Note: The U.S Small Business Administration has emphasized that the success of any business lies in its management. And that poor management of small business loans is cited as the reason behind business failure.
#2 Invest more on item(s) with high selling power:
Practically, investing more on item(s) that sells pretty fast in your company/store is not just a strategic way of increasing your business profit. But, it can be a way to pay off your debt earlier, and with ease. How do you spot out the best moving part of your business?
All you have to do is to study, keep track of both the previous and current sales records of each item sold in your store/company. Let’s say you run a retail store where you sell provisions, toiletries, and vegetables. And the average weekly sales report of each item for the past six months is as follows:
- Provisions: 345 pieces.
- Toiletries: 200 pieces.
- Vegetables: 150 pieces.
From the above results, you’ll discover that ‘Provisions’ have more selling power than Toiletries. Toiletries have more selling power than Vegetables. Learn early that it is wise to invest a higher percentage of the loan on what is selling the best in this case — provisions. Then use a moderate percentage of the loan on toiletries, and a lesser percentage of the loan on vegetables.
Thus, this technique ensures the constant availability of items with higher selling power — which will result in more profit.
#3 Save 20 percent and invest 80 percent of the entire loan into your business:
Saving 20 percent of the SBL received, and invest 80 percent of the loan into your business. This way of spending is a smart way of preparing for an emergency monthly loan repayments.
With the saved money (or backup money) you can easily pay up your SBL monthly refund without going through stress — especially during low sales seasons and still, secure your reputation with the lending agency.
Hence, if sales are friendly enough, it’s advisable to pay off your monthly returns from the money realized through sales and still leave the saved money for the raining day.
#4 Adopt the two-week half-monthly payment system:
Several analytical kinds of research have proven the ‘two-week payment system’ to be a reliable technique that clears debt earlier than expected. The Mortgage Report affirms a two-week half monthly mortgage payment system to be a program that short-circuits any loan amortization schedule.
A two-week, half-monthly payment system is simply a scheduled payment system whereby a borrower pays off half the monthly loan every two weeks.
Interestingly, instead of you paying off your SBL of $3000 in three-months — you will be paying $1000 every month. You can make up six full payments of $500 in 84 days in this way. This way of payment is less than three months (90 days) using this type of payment system. Thus, the two-week half-monthly payment system has earned you six debt-free days compared to the standard monthly payment method.
Note: This technique can be used for any form of loan you have or want to apply for.
There is no doubt that the challenge to pay back small business loans (SBL) has become a nightmare for many entrepreneurs, but with the above tips you should be able to make your full payment early, and with ease. Also, you have to be consistent in your payments to guarantee a reliable result.
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Entrepreneur and Online Marketing Consultant, Ejiofor Francis is the Founder of EffectiveMarketingIdeas. He's highly enthusiastic about all things business, IT and blockchain technology, and he shares informative resources to help businesses and consumers stay informed, safer, and smarter online. Want to say hi? Shoot him an email at email@example.com