No matter how successful your business is, income and expenses do not always line up exactly how you would wish. This means that keeping track of debt is a necessary factor for all business owners.
One of the best ways to keep on top of business debt repayment is to use automation, or rather, to use automation in a specific way. Automating monthly bill payments to lower debt can help you ensure that debt isn’t left to grow, and it can also help you avoid missing a payment and accruing penalties or fees. These are all good things for people looking to lower debt, but automation can cause problems if you let it lull you into turning a blind eye on your loans and other debt. So make sure that you set up automatic payments for your debt, but also make sure that you set alerts on your calendar to check in on a regular schedule.
“If your business has debt, it belongs on your quick check sheet,” states Darren Dahl, contributing editor to Inc. “The point is to know what your ratio should be and whether you want to establish a budget to begin paring down your debt level.”
There are many benefits to regularly checking in on your loans. For example, your credit score may have improved, which can have a big impact on how you handle your debt. If you have been making timely payments for a while, it is likely that your credit score has improved steadily, and this means you could consider consolidating debt with a new loan that has a more favorable interest rate.
“Your credit score could also help you qualify for a better deal on your current loans through refinancing at a lower rate,” states Ami Kassar, contributor to Entrepreneur. “This would immediately lead to lower monthly payments. So, it makes sense to review every couple of years, because two years of consistent, on-time payments can lead to a noticeably better credit score.”
Another reason to keep on top of loan repayments is that your repayment strategy will likely change as your business’s other finances change over time. If you have managed to stay on top of your cash flow and save cash for a rainy day, you may want to use some of it to pay down your loans faster, in order to decrease the total interest you pay.
Just as your current financial situation can impact your debt strategy, your current debt situation can affect your business plans. If you know exactly where you stand in regards to debt, you will know your ability to take out further loans to expand your business. This means you won't miss out on an opportunity if you have the ability to borrow, and likewise, you will not take on a project that would be better saved for later.
The best way to make sure that you are on the correct track with these things is to schedule a debt review at least twice a year with your financial advisor or financial institution. During this review you can adjust your strategy as needed and as new options become available.
“New businesses typically don’t have many assets. After a few years, though, your business may have accumulated valuable assets, like inventory or equipment,” states Kassar. “You could use these as collateral for an asset-backed loan, which would allow you to qualify for larger loans and possibly a better interest rate. If your credit and financial situations have improved, you may also now be able to access a line of credit, which will give you much more flexibility to manage your financing.”
Keeping track of your business debt is not difficult, and the benefits are obvious. So make sure to set time in your schedule to go over your debt on a regular basis, and you will be well on your way to reaping these rewards.
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