As an entrepreneur or a business owner, loan management is a skill that you will need to master. Whether you are just starting out or are an established business, there will be times when negative cash flow will put you in a difficult situation. That’s when you will need to rely on funds to ensure you have free cash available to make your payments. Staying on top of your loans can help you drive business growth while ensuring you never get caught up in a funds trap. Effective loan management will also help you maintain your reputation so you can partner with lenders in the future. Here are five highly recommended tips to manage your loan and pay them back in a timely manner.

1. Automate Your Payments

One of the most effective loan management tips is the automation of your payments. If you miss a payment or make it late, it can impact your reputation and current standing with the lender. Once you earn a bad reputation, it becomes quite challenging for a business to acquire funds from future lenders. Setting up automated payments will ensure that when the time comes, the money is deducted right away from your account without any delays. You won’t have to worry about making the payment on time.

2.   Use Your Free Cash Wisely

Now that you have free cash in your account, it is important that you plan the expenses smartly. Make sure that you are investing money for driving business growth so you can improve your revenues and profit margin. It is highly recommended that a business loan shouldn’t be used for non-growth initiatives as you can struggle to pay it back in the future which will ultimately affect your reputation. If your loan has started to pay off and your business is in much better shape in terms of liquidity, you can also choose to pay the loan back making bigger payments. That being said, you will need to negotiate the terms of payment with the lender as there might be a penalty on paying the loan sooner.

3.  Improve Liquidity with Invoice Financing

There will be times when you have sold a lot of inventory but don’t have cash at hand, only account receivables. If you are struggling to pay off your funds in such times, you can rely on invoice financing to bridge the gap and ensure that you don’t miss a payment. The gap between selling your products to a client and receiving the payment can cause liquidity problems, especially for small businesses. Invoice financing allows them to get instant short-term loans against their invoices so they don’t have to deal with cash flow challenges.

4.   Try to Avoid New Loans

Unless it’s a high probability that you can turn your loan into profits, try to avoid taking out new loans. The best way to manage your business loan is to pay it off in a timely manner ensuring it is invested in business growth activities. For instance, you can take out a loan to fulfill a purchase order but it would be a bad idea to use funds to get a bigger office space that you don’t need. Always calculate the cost of your loan and the potential profits it’s expected to bring. Ensure that the cost versus benefit ratio is in your business’s favor.

5.   Keep Track of Your Loans for Better Planning

Ensure that you know your numbers when it comes to how much you’ve to pay and when you need to pay it. There are many factors that dictate the availability of funds in the future including the amount you’ve borrowed, payment history, loan term, and many others. If you want to be in a strong position financially, manage your credit and the related information with due care.

Final Word

Acquiring a business loan is no doubt a huge win for your company but you need to ensure the loan is spent wisely and for profit-driven initiatives. Make a plan for paying it back in a timely manner and ensure you don’t get caught up in a funds trap. Use the aforementioned tips to manage your business loans to stay on top of your credit.