Cash Flow Loan Repayment Strategies: Managing Your Business Finances

Cash flow loans offer small and medium sized enterprises (SMEs) a crucial lifeline when working capital becomes tight during the business year. Whether it’s payroll demands, purchasing inventory or navigating seasonal drop-offs, cash flow is essential for keeping operations running smoothly. And a loan may often be the best way of getting access to the cash you need. But, while applying for these loans is generally easy and straightforward, repaying them on time and in full while juggling all the other demands of the business is not always quite so problem-free.

Below, we will run through some of the most effective cash flow loan repayment strategies to help you stay on track and avoid the financial pitfalls that can come when you take on any type of debt.

Understand Your Loan Terms

This is the most crucial piece of advice we can give you. In fact, if there is one takeaway from this article, then this should be it. So many businesses get into trouble by not having a clear picture of the details of the loan they have agreed to. That means being certain about the loan amount and duration, the interest rate (and whether this is fixed or variable) and the repayment schedule. Then there are additional complications in the form of early repayment fees of penalties for missed payments to be aware of. It is vital that you always know what you owe and when you are required to pay it.

Build Repayments Into Your Cash Flow Forecast

One of the best things you can do is to include your repayments directly into your cash flow planning. That means updating your cash flow forecast to reflect your scheduled payments. A cash flow repayment of a loan​ will give you a much more detailed picture of how the loan will affect your monthly cash position. If you can make flexible repayments, then try and align these with your seasonal business cycle.

Consistent Repayment

Missed payments can lead to penalties, increased interest rates and may leave a black mark against your business credit score. Which is why you should always try and prioritise a consistent repayment plan. A good way to do this is to set up automated payments which removes the need for manual payment processing. Just be sure you always have enough funds to cover any direct debit payments.

Reduce Other Expenses

Meeting cash flow loan repayment​ obligations means you may need to review your business expenses and identify areas where you can cut costs. Rather than seeing this as a negative, try and look at it as an opportunity to streamline where possible. Then, when your loan is fully paid off, you should see the benefits of a leaner and more efficient business operation.

Use Your Loan Funds Wisely

Ideally, the money you have been loaned should be invested wisely to boost income. This can be achieved in various ways, such as purchasing inventory that will sell quickly or upping your marketing budget to try and reach new markets. Using your cash flow loan for growth-generating activities rather than just covering existing debts and obligations is a great way to help repayments.

If you would like to know more about responsible borrowing or to discuss the repayment of a loan in a cash flow statement​, get in touch with a member of our team here at Century Business Finance.

Image source: Canva