While running a business, entrepreneurs may face a lack of capital and require external funding to sustain or expand business operations. One way to obtain additional funds is by taking out an unsecured business Loan from a reputable NBFC. These are collateral-free loans with no end-use restrictions, allowing business owners to cover any expenses they plan for their firm. Nowadays, obtaining a business Loan has become extremely easy due to the 100% digital loan procedures of various NBFCs. However, after obtaining a loan, it’s crucial to manage the business finances appropriately to repay the loan timely and support business growth as planned.
Below, we provide a few tips to manage business finances after taking out a loan.
- Make a Mature business Growth Plan
Aspiring borrowers must carefully plan their finances and growth before applying for an MSME loan. That involves deciding what they need to grow the business so they can estimate the required loan amount. Ensure that the loan amount is enough to cover the intended expenses, and consider monthly income and costs to ensure a timely repayment. With proper planning, loan seekers can decide the loan amount and borrow according to their repayment capacity while maintaining financial stability.
- Pay Attention to the DTI Ratio
While applying for a loan, an applicant must also pay attention to their debt-to-income ratio. Ideally, it should not be more than 30-40% to avoid bad credit and keep the finances in healthy condition. Besides, it shows the borrower’s ability to repay the loan and improve the credit score during the repayment tenure.
- Record the Cash Flow Regularly
Recording the cash flows regularly is essential, including loan invoices, borrowed funds, monthly expenses and profits, etc. With neat bookkeeping, borrowers can calculate their budget and reduce unnecessary expenses to allocate the loan amount more effectively. Moreover, it avoids the risk of late payment penalties or bad credit due to efficient EMI planning. Borrowers can budget their finances to find a suitable tenure, decide on a loan amount, and pay their installments on time.
- Keep Personal and business Funds Separately
An important piece of advice would be to keep personal and business funds separately while running a company. It helps monitor whether the business is making a loss or profit, making it easier for the company owners to prepare financial reports without personal finances interfering with the cash flow. Moreover, keeping both funds separately helps the owner to ensure that they allocate the loan funds optimally and use them effectively as planned.
- Pay Attention to the Current Debts, Assets, and Receivables
Prepare a list of assets the company owns, starting from the smallest to the biggest. Never use a new loan to pay off the old debt unless it’s for debt consolidation with a lower MSME loan interest rate. Also, consider the maintenance and depreciation costs of these assets that might cause a decline in their market value. Moreover, opt for an unsecured loan to ensure no assets are put at risk for loan repayment. Knowing the business debts, assets, and receivables will ensure smoother business continuity.
- Make All Payments on Time
Whether they are loan EMIs, credit card bills, or suppliers’ payments, always try to pay them on time before the due date. Paying all bills on time will bring the advantage of maintaining good relations with suppliers and creditors and improve financial cash flows. Besides avoiding penalties, paying EMIs and credit bills on time keep the credit score in good condition.
- Invest Profit in business Growth
Another way for efficient business financial management is taking advantage of the profits and investing them into developing a bigger business. The ultimate goal should be to make a profit from profit. However, only some businesses are sure to make a profit. Some make profits instantly, while others take years to generate sufficient revenue. It all depends on how company owners manage the business and their finances. Some ways to invest the profit in the firm include hiring more skilled employees, opening more outlets, adding more products to the product line, etc.
Although many business owners would want to use their profits for personal luxuries and lifestyle improvement, it’s better to invest the profit in growing the business. Once the business finances stabilise, the owners can use larger proportions of their business earnings for personal use.
- Pay Attention to Third Party Contracts
Many parties are crucial to running a business successfully, including those who benefit from the business process. Sometimes, business owners need third-party service providers to ensure smooth operations. While collaborating with them, ensure making a legally regulated agreement with them to clarify the goals and expectations. For instance, some points to include in the contract are clear payment periods, profit sharing between the parties, due dates, etc.
- Meet Tax Deadlines
Filing tax returns and paying them on time helps avoid paying any penalties. Business owners can avoid these unnecessary costs with proper planning. Keep accurate records to save business money and time and stay updated with timely tax payments.
- Get the Right Funding
Choosing the right type of business Loan is essential, as different finance options cater to different needs. MSMEs usually rely on personal savings and unsecured business loans to get the best kind of funding for their company. Compare loan options available in the market and know which one best suits the business needs.
Features to Look for in a Small business Loan
While planning to apply for an SME loan, look for these features to get the maximum benefit:
- Ample loan amounts
- Reasonable MSME loan interest rate
- Flexible repayment terms
- No end-use restrictions
- Minimal documentation
- Simple eligibility conditions
- Easy online application, instant approval, and fast disbursal
Hopefully, the tips mentioned in this article will help business owners utilise their loan funds and manage their finances efficiently! Use a business Loan to build working capital, expand business operations, invest in marketing, hire skilled staff, or any other purpose to keep the company on the right track to success. Compare loan offers from different NBFCs as a business owner and opt for one that best suits your financial needs and repayment capacity.