The average SBA loans for businesses is $107,000.
Whether you need to establish or expand your small business, SBA loans are the best financing option to help you achieve this. SBA loans have very reasonable rates and flexible payment options to make loan repayment easier for small business owners. That’s why plenty of small business owners who meet eligibility requirements opt for SBA loans to finance their businesses.
Though the payment terms are lenient, paying off loans early is still a good idea. Remember, cumulatively, the low-interest rate may not look so low when you finally crunch all the numbers.
Debt could be your good or bad, depending on how you utilize your loans. Financial imprudence could leave you in the financial doldrums for quite a long time. While on the other-hand wise financial decisions could elevate your business to greater heights.
Paying off loans could be difficult, especially if things don’t go as expected. In this article, we’ll show you exactly how to pay off your SBA loans, so you’re always in good books with the SBA.
Benefits of Taking an SBA Loan
Financing is necessary for businesses large and small to achieve their short- and long-term objectives. In 2017, 40% of the businesses that took out business loans enjoyed higher approval ratings than their counterparts. Here are a couple of other reasons why SBA loans are so beneficial to businesses
Lower down payment requirements– You need a contribution as low as 10% of the loan amount to qualify for an SBA loan. This is way lower than other business loans, which may require more than 30% equity to qualify for a loan.
Acceptable for both new and old businesses– You don’t have to be starting your new business to qualify for an SBA loan. Existing businesses also have a lot to gain from taking an SBA loan, especially for expansion or marketing reasons.
Less stringent requirements than banks– Dealing with banks for financing can be a headache, especially for first-time business owners. Since the federal government guarantees, SBA loans getting these loans is much easier and less of a hassle compared to traditional financial institutions.
Longer and flexible repayment terms– SBA loan repayments don’t pressure you. That’s because the federal government is trying to promote local businesses. As such, expect flexible repayment options that won’t give you sleepless nights.
Proven Ways of Paying off Loans Early
You should approach debt repayment with a sober and realistic mind state. Paying your debt early is always a good idea, but not if it leaves you bankrupt. Paying debt gets more complicated when you own your business because any wrong decisions could mean the collapse of your entire enterprise.
With that in mind, the right approach to debt repayment always works for the good of your business. While unpaid debts could give you sleepless nights, here are a couple of ways to get rid of debt and focus on growing your business.
1. Consider Bi-Weekly Payments
You are supposed to pay off your loan in monthly installments. If you can, consider paying once every two weeks. When you do so, you cut your repayment period by half.
If you adopt this method, you better brace yourself for dramatic changes in your business. That’s because making biweekly payments means you have to cut down on your usual expenses. So, you need to start making some frugal changes, but it will all be worth it once you pay off your debt.
2. Send Money Whenever You Can
If you want to clear your SBA loan very quickly, just send money whenever you can. You don’t even have to spend a lot of money; a little money will suffice. If you do this often, these small payments will cumulatively help pay off a large portion of the entire debt.
The issue with this technique is that it requires a lot of discipline to pull off. It’s especially hard for penny-pinchers who don’t like parting with their money. However, after a few payments, you get used to the whole thing.
Another way you can beat your indiscipline is by getting an automatic payment setup. This means that after a given period, a certain amount from your account will be deposited to the SBA for loan repayment. Just ensure you add a note when making payments so they can know you’re paying extra to the usual installments.
3. If Need Be, Take a Slow Approach
It’s only normal to want to clear your SBA loans as fast as possible. However, if you can’t find a way to do so, there’s no need to stress over the loan repayment. Remember, you want to pay off your loan as early as possible, not as early as impossible.
So, when you’ve exhausted all your avenues but you can’t find a way to pay the loan early, focus on paying off the loan on time. It makes sense to take full advantage of the low-interest rates of SBA loans. Paying a bulk of your loan too early may have devastating effects on the business.
Just take a slow approach, make a budget, and plan everything out. Remember, all you have to do is meet the deadline, which is most likely far away. Plus, you can get expert help if things get too thick to help you with your SBA loan payment.
4. Make an Extra Payment Every Year
Make a budget that involves an extra loan payment every year. Choose a time when your business is making a killing and use some of the profit to make an extra payment. Alternatively, you can use your tax refunds for this additional payment.
5. Have an Emergency Fund
Emergency funds aren’t only for big businesses. This emergency fund can help you when you’re in a sticky situation with your loan repayment. Sometimes, your business might not be doing so well, and you may be late for your loan repayment.
The emergency fund will help you out of this situation and avoid any repercussions of defaulting.
You Need a Solid Plan for Timely Loan Repayment
Paying off loans early is much simpler and faster with a systematic and chronological plan. Remember to be realistic when making this plan. It’s better to exceed your target than fail to reach it in such situations.
If you take these five methods to heart, you’re well on your way to paying off your SBA loan on time or even earlier. If you pay off your first loan on time, don’t hesitate to take another business loan from the SBA.
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