Repayment of Business Loans

Once you have successfully applied for a loan, you will be expected to make repayments to the lender. Often, these repayments will initially cover the interest charges but not repay the capital. Over time however, both the interest and capital will need to be repaid. The repayment term will be agreed upon with the lender when you sign the loan agreement: you may be able to negotiate your repayment term if you consider you need more or less time than the lender offers. Typically, loan repayments will be made each month. The method of repayment will also be negotiated with the lender when you apply for a loan.

It is important to discuss every eventuality with your lender: what is the penalty for a late payment? What are the penalties for early repayment? Make sure that you check that the terms they offer you are clearly stated in your finance agreement. Always read the small print in the agreement before signing: this ensures that you avoid unpleasant surprises in the future. If you have sought finance via a private equity organisation it is not normally necessary to make loan repayments (see Equity Finance).

Often, if extra cash becomes available and you are considering paying off your outstanding loan balance early, it can be worth reinvesting the funds in the business; many lenders will charge early repayment fees. Make sure you ask the lender about these when making your application: it can be a disadvantage not to be able to clear your debt as soon as possible.

If you are struggling to make repayments, do not panic: contact your lender and try to negotiate a new repayment schedule. If you are unable to keep up with repayments, the lender could contact your guarantor, or repossess your assets. If you consider that you may find it difficult to make loan repayments, perhaps because you are starting a new business and its success is not guaranteed, you may wish to consider purchasing payment protection insurance.