Once you get notification from the bank or any lender that your loan application has been approved so fresh capital cash is on its way to finance your business, it’s not surprising to see smile painted on your face.
That’s because not only you’ll receive fresh funding to help grow your business but also your business plan which you submitted in your loan application is solid enough to warrant getting approval.
There are many reasons why we apply for business loans. We want to expand our product offering, we want to upgrade our equipment, or maybe recruit more staff to grow the business. Without proper planning, cash on hand can easily get mishandled and spent on things that are not related to business. Heck, it can even be used to have a small “celebration” for the loan approval.
That is why even before a loan application gets approval, having a checklist of where loan money goes to will go a long way as a guidance to entrepreneurs, especially those starting out.
Here are some guidelines that will help you manage your loan effectively.
Be mindful of payment due dates
As a borrower we are responsible to honor an agreement entered into with the lender. Having reviewed the terms of payment, including the amount payable and monthly or quarterly due dates, we should pay the right amount on time. Doing so establishes our reputation and integrity, a trait that go along way, and may be key to getting approval for future loan applications.
Keep lender in the loop
It is a sensible act to inform the lender on how the business is progressing and how the loan has helped it grow, even though it’s not necessary. A regular communication and transparency establishes a sense of confidence and builds trust, thereby making the lender-borrower relationship strong.
Do not miss payments
Needless to say, it cannot be stressed further that a loan payment obligation has to be settled promptly. We need to have discipline to allocate funds from the business to be used as loan payment. Doing so creates an untarnished credit record. 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.
Use capital effectively
Always remember the reason why we had to borrow money in the first place. We can then focus on this and ensure we are not tempted to use it for other purposes such as paying off an existing debt.
Pay extra when you can
If the business we manage suddenly experienced growth in revenue, partly because we boosted the capital through borrowed money, it’s a good idea to pay off the loan in amounts greater than our monthly obligation. Doing so helps us create a buffer, and reduce risks of future liability. Regularly doing this practice could help us settle the entire loan earlier than expected, and lender can offer fresh loans bigger than last time because we have proven we can pay off our loans promptly.
Following these guidelines requires a little discipline. If that is in place, our loan management skills will automatically come through.