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In the course of most businesses, there may be times when you need cash immediately. An important piece of equipment may have broken unexpectedly. Or vendors may be delinquent on their payments, causing you to have a cash flow problem at the same time you need to make payroll.
With many business loans, it can take weeks or months to receive funding. For example, an SBA loan can take 30-90 days for approval and funding.
However, there are lending institutions, mostly online lenders, that offer loans with fast financing times. However, these loans usually have short terms and high interest rates. That makes careful loan management essential.
5 tips to manage your fast business loan
Because of the higher interest rates often associated with fast business loans, it’s important to manage them properly so you don’t default on the loan or end up owing more money.
1. Prioritize your bills
Since these loans usually come with higher interest rates, you don’t want to be late with payments or miss them altogether. That adds late fees on top of the higher cost you pay to borrow the money. As you prioritize your bills, your payment for a fast business loan should be at or near the top of the list.
If money is tight and you’re struggling to make these extra payments, look at other things you can cut from your budget, such as monthly subscriptions that are nice to have but not essential.
2. Use automatic payments
The best way to make sure you don’t make late or missed payments on your loan is to sign up for automatic payments. However, you need to have a steady cash flow so that funds are always available when payments are withdrawn from your account.
This strategy is especially useful if your fast business loan requires daily or weekly payments that may be difficult to maintain manually.
3. Increase your monthly payments
The payment amount is the minimum amount you must pay your lending institution each month. However, if you can pay an additional amount each payment period, it will reduce the total amount of interest you have to pay. If you have good months and your accounts receivable are higher than expected, you can direct some of the extra funds to your fast business loan.
If you’re using automatic payments, you’ll need to manually make a second payment with an additional amount.
4. Pay off the balance early
If your lending institution does not have a prepayment penalty, you may be able to pay off the balance before the final due date.
One way to do this is to make higher monthly payments (see #3) until the balance is paid off in full. You can also make early, large, lump sum payments. Or you can combine the two: Make higher monthly payments until you have the funds to pay off the loan in full before the final due date.
This will save you money in interest — unless the lender uses a factor rate instead of an interest rate.
5. Refinance the loan
Your purpose in getting a fast loan is to solve an urgent need. Once the problem is resolved, you can look at replacing that loan with a traditional business loan with a lower interest rate. This can make the cost of borrowing money less expensive and give you a lower monthly payment.
However, before refinancing your loan, you’ll want to factor in the cost of origination fees. If the amount of money you save with a lower interest rate is offset by the origination fees from a new business loan, it may not make sense to refinance the original loan.
The bottom line
If your business has urgent financial needs, getting a fast business loan can be the solution. However, since these loans often come from online lenders and carry short terms and high interest rates, it is important to manage them properly.
Your keys to success are making on-time payments (preferably automatic), sending more than the minimum payment whenever possible and paying off the balance early. And, if you see interest rates dropping, you may want to consider refinancing the original loan.
