One of the top causes of small business failure is lack of funding to not only launch but also grow in the first years. The simple solution is to take out a business loan to ensure you have enough to cover your expenses until profits start rolling in.
But what happens when you’ve taken out a loan but now you have other expenses to pay and you want to grow your business? The good news is we’ve got tips to manage both your loan payment and everything else you’ve got going on.
1. Reserve Some of the Money
It can seem like a blessing from heaven to be approved for a small business loan and see tens of thousands of dollars in your bank account! But you have to remember that this money has to be paid back, starting pretty much immediately.
So before you spend it all right away, put at least six months’ worth of loan payments into a savings account. You aren’t guaranteed to make a profit in your business right away, so you need to ensure that you can pay the loan to avoid defaulting on it.
2. Factor the Loan Payment into Your Budget
You’ve got your office rent payment, internet, payroll…all of these expenses are part and parcel of running a business. But are you leaving anything out?
Your loan payment! Forgetting to include it in your budget could jeopardize your business, so make sure it’s included and that you can afford to pay all of your expenses on time.
3. Set Aside Some of Your Profits
Once you’ve planned for all of your regular expenses, including that loan payment, it’s time to start putting aside more money to help you reinvest in your company. Each month, carve out a little from your profit and put it in savings.
Your first goal is to have enough for unexpected expenses. You never know when your computer will break or a box of products might get damaged and need to be replaced.
Once you have emergency money in reserve, you can focus on building your nest egg and use this money to invest in new equipment, hire more employees, or expand your product line.
4. Increase Your Loan Payment
Although you have your terms set for how long you will be paying on your business loan, that doesn’t mean you can’t pay more and save a little on the interest you are charged for the loan. Even paying 10% more each month on your loan can cut back several months’ worth of payments and save you a significant amount on interest. That’s money you can put toward your business once your loan is completely paid off!
Look at taking out a loan as an investment in your company. Yes, you will need to prioritize paying it back over time, but that doesn’t mean you can’t also grow your business simultaneously. Be mindful about how much financing you take from the start, only taking what you need to ensure you have cash flow in the first months of launching your business, and make sure you can always afford to pay your loan payment.
About the Author: Christine Soeun Choi is an SEO associate at Fit Small Businessspecializing in digital marketing. Currently based in NYC, she has a background in business studies and math with a passion for business development. When not helping small business owners, Christine enjoys taking photos, exploring artwork, and traveling