As the owner of a small business, cash crunch feels like an on-going cycle – there are too many things that could do with a little more tender (read money) love and care from you, and not enough resources to fulfill the requirements. This leaves you with no choice, but to secure a line of credit, which itself is no easy feat. So, once you have secured a small business loan, remember to use the capital wisely.
We have created some pointers that should help you manage your wealth well and ensure that you do get a breather from the cash crunch cycle, even if it is for the briefest period.
- Schedule a repayment policy
SME loans in India are generally extended for a brief period, which is for a period of two to three years. The loans also mostly come with a flexible repayment procedure that is convenient for the borrower that is you. As a best practice, it is advised that you repay a small business loan on time. You can easily do so by creating a schedule and giving yourself a seven-day flexible window to adhere to the same. This will not just help you maintain your good credit rating, it may also ensure that the objective you borrowed the money for is resolved.
- Look for prepayment opportunities if possible
Every business big and small alike, and even individuals should know the importance of a high credit rating. A specific rating can be bettered and improved with certain pro-active practices. One of which is paying your SME loans on time, or even before the tenure is over. It is advisable to look for prepayment options, even if that means paying a fortnight in advance. However, do ensure that your lender does not levy a penalty on prepayment.
- Check your business credit rating
Often, the credit rating of the business takes a hit after it borrows debt from a financial institution. Your credit rating is linked with the credibility of your organization and you should make every effort to maintain a high credit rating like you did before procuring an SME loan.
- Consider refinancing
The smart borrower always considers refinancing whenever possible. Refinancing is nothing but the process of transferring an existing loan into a new one, with new terms and condition to enjoy more securities and benefits. If your lender allows for a refinancing of your existing small business loan, and the option makes more sense for your business, do not hesitate to take it up.
- Don’t be encouraged into taking another loan, unless you absolutely need it
Ironically, once you have been sanctioned a small business loan, other lenders will know that you are in the market for one. Seeing the fact that one lender did extend a line of credit to you, they would like to do the same. Don’t be caught off guard and be pulled into securing yet another small business loan, unless your business absolutely needs it.
SME Corner is an online platform that offers unsecured small business loans. You can connect with us at, www.smecorner.com to get the right advice on small business funding in India at any stage of your business.