Ways to Avoid Paying Too Much on a Business Loan

By CIO Review Team

The idea to support your business with additional working capital may sound exciting but most entrepreneurs overlook the basic criterion. Because of which they land up paying more interest on the borrowed funds.

Assess your debt

The first step is to assess the extent of your  business loan debt. Use your existing cash flow to determine how much cash you can dedicate in repaying the loan on a monthly basis. You could use the percentage method, where in, you allocate a certain percentage of your profits to pay off extra debt. It is prudent to trim unnecessary expenses till the goal of being ‘debt-free’ isn’t achieved.

Revisit the terms of the loan

The next step is to be aware of the terms of the loan to help you pay it more adequately. You could reach out to your lender to renegotiate the terms with respect to the late fee, payment restructuring and business loan interest rate. NBFCs, like Bajaj Finserv, offer flexi loan facility where you could pay the interest amount as EMI and repay the principal amount at the end of the tenor of the facility.

Automate payment
You may also automate your debt payment by enabling the Standing Instruction option in your Current or Savings Account. This way you’re being regular and disciplined in making the repayment.

Debt consolidation
You could consolidate all your debt into one account to ensure you’re making one payment every month to get rid of the balance. Bajaj Finserv provides debt consolidation plans at low interest rates, compared to other types of loans.

Perhaps you could add more products or services to your current offerings, maintain the volume of sales but at a higher price, optimize your inventory turnover.

Enhance your EMIs
You can reach out to your finance provider and negotiate on enhancing your EMIs every year. Fruitful utilization of the surplus in funds will help you to reduce your loan period.
 
Assess the APR
It is imperative to assess the Annual Percentage Rate (APR) which is directly related to your EMIs. The APR is the annual amount of interest which you pay on your total loan amount. It also takes into account other hidden charges and additional fees.

Avoid prepayment penalties
While taking the loan be aware of the prepayment charges, in case there comes a time where you are able to pay back the loan well before the loan tenor. This will give you clarity on the possible ways to utilize your surplus funds, instead of incurring the prepayment charges.
 
Beware of double dipping
Many business owners take a new loan before completing the repayment of the existing one. Some lenders may double charge you for the outstanding portion. It is important to discuss this beforehand instead of falling victim to this practice. With relaxed business loan eligibility criteria in NBFCs, along with the facility of flexi business loans it is easier than ever to borrow prudently, while saving on interest rates and lowering your EMIs.

Author Bio:
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