5 Powerful Strategies to Repay Your Business Loan Efficiently

Repaying a business loan can feel overwhelming, but you can manage it smoothly with the right approach. In India, where many businesses rely on loans for growth, understanding how to repay efficiently is crucial. Here are five powerful strategies to ensure your business loan repayment is done on time and without unnecessary stress.

Use a Business Loan Repayment Calculator

Before you take a loan or start repaying, knowing exactly how much you need to pay is essential. A business loan repayment calculator can help you estimate your monthly instalments (EMIs) and understand the total interest.

Why it’s important:

• Helps you plan your finances better.
• Gives you a clear picture of your cash flow needs.
• Helps you avoid missing payments.

You can find several online tools for this purpose, including the business loan EMI calculator, which allows you to input the loan amount, interest rate, and tenure to see the monthly payments.

Also Read: Understanding Loan Repayments: A Simple Guide for Borrowers

Pay More Than the Minimum EMI

One of the best ways to pay off your business loan faster is by paying more than the minimum EMI. This reduces your principal amount quicker, reducing the interest you pay over time.

Benefits:

• Reduces the loan tenure.
• Saves money on interest.
• Boosts your credit score.

For example, if you have a loan of INR 10 lakh with a 12% interest rate for 5 years, increasing your EMI by INR 1,000 can cut down your loan term by several months. The business loan EMI calculator can help you plan these extra payments effectively.

Refinance or Restructure Your Loan

Refinancing or restructuring your loan could be a good option if your business is struggling with high interest rates or if your cash flow improves. Refinancing involves taking a new loan to pay off the existing one at a lower rate or better terms.

Why consider it:

• Fetches a better interest rate.
• Extends the repayment term, lowering EMIs.
• Reduces the financial burden on your business.

Always use a commercial loan repayment calculator to assess how the new terms will impact your repayment schedule.

Set Up Automated Payments

Once you have set up automated billing, you will never forget to meet the deadlines again. Different lenders can now deduct money from your corporate account, helping you avoid delays. It is safer and helps keep a good relationship with lenders, effectively reducing payment conflicts.

Why this works:

• Eliminates the risk of forgetting a payment.
• Ensures you always pay on time, improving your credit score.
• Helps you avoid penalties and fees.

For example, suppose you have set up automated payments of INR 50,000 every month for your loan. In that case, the lender will automatically deduct this amount from your account, reducing your chances of missing a payment.

Regularly Monitor Your Loan with a Loan Calculator

Constantly tracking your loan progress can help you make informed decisions. Use a business loan calculator regularly to see how much principal you’ve repaid and how much interest you’ve paid. This also helps you determine when you can pay off the loan ultimately.

What it helps with:

• Gives clarity on how much of the loan is left.
• Helps you keep track of your financial health.
• Helps you make timely decisions to pay off early or adjust payments.

Using a business loan repayment calculator periodically helps you gauge whether you need to adjust your payments by increasing your EMI or paying a lump sum.

Key Stats on Business Loan Repayment in India

Default rates can differ between small businesses and micro borrowers. For example, micro borrowers had a 3.1% default rate in Q4 FY23. This is down from 3.9% in FY22 in the same quarter.

Also Read: Flexibility of Repayment in Business Loans

The Bottom Line

Repaying a business loan is essential to managing your business’s finances. You can ensure timely repayments by using a business loan EMI calculator, paying more than the minimum EMI, considering refinancing, automating payments, and regularly monitoring your loan progress.

Being in charge of your loan in an organised manner will help you save on interest, increase your credit score, and enable your business to grow progressively. All this will be facilitated easily without you being tied down by debts or financial ruin.

Apply for a business loan today to generate funds that suit your business needs. Best of luck!

FAQs

Q.1. How is a business loan repaid?

A. Repaying a business loan is straightforward. Each month, on a specific date, you pay your EMI until the loan is fully cleared by the end of the term. The EMI includes the principal amount and the interest, which are paid over the specified loan tenure.

Q.2. Is prepayment allowed in business loans?

A. Yes, the pre-payments on a business loan generally accompany a fee called pre-payment charges. These charges may vary from one lending institution to another.

Q.3. How to get out of a business loan?

A. Some quick tips include reducing your expenses and/or increasing your income so you can pay your EMIs quickly. Moreover, try refinancing your debts or transferring your loan to another lender offering better terms or lower interest rates so that you can repay your loans faster.

Q.4. What is the rate of interest for a business loan?

A. The interest rate for a business loan in India ranges from 10% to 44% per year. The rate depends on the lender, who sets the rate according to the type of loan, the amount borrowed, and the borrower's credit score.

Q.5. What if I am unable to pay a business loan?

A. Missing an EMI can incur additional charges and fines for defaulting the payments. If you can't repay your business loan, try renegotiating the terms with your lender, reschedule the debt, or consider alternative lenders. Moreover, try to improve your credit score and plan a strict budget to pay your EMIs on time.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.