Loans, credit cards and overdrafts are all essential to business. Without them many companies would struggle to grow, to find the funding for development or to cover cashflow problems. The majority of businesses require debt finance at some point, whether it’s to help avoid a negative situation or to create a positive one. But what can you do to make sure that you pay as little as possible for what you borrow? Here are 6 things that will help cut the cost of your business debt.
1. Choosing the right product
Debt works really well when you choose the right type of debt for your business. You can reduce what you pay for business debt by making a well-informed choice. For example, peer-to-peer lending may be an option if you’re unable to get a loan or finance from a traditional bank and can be cheaper too. The key factor in business debt cost is often time. Choosing a short-term finance option, such as payday loans, and then using it over the long term can be incredibly costly. So, make sure you’ve worked out what you want the debt to cover, how long you need it for and when you want to repay before making any applications.
2. Nurturing your cashflow/credit score
The conditions for a decision on business debt tend to vary but two things that have a big influence are the cashflow/creditworthiness of your business, as well as your own credit score. If your business doesn’t have great creditworthiness, or is too new to have any credit history, then a lender will look at the credit score of someone able to guarantee the business’ debts. If either the business, or that person, have a solid credit score then the debt is likely to be offered at a cheaper rate and you’ll pay less for it.
3. Shopping around for the best deal
You don’t have to take a small business loan from a high street bank when it comes to financing your business. There are so many choices now that interest rates, fees and conditions are really competitive. If you need finance consider all the options – the high street bank, the online lender, the peer-to-peer lender and the government-backed lender. If you have a good personal credit score you can even act as a guarantor for your own business and apply for a guarantor loan. Compare loans, overdrafts, credit cards – or whatever you’re looking for – with each one and see which gives you the best deal, both now and in the long run.
4. Staying on top of the repayments
It’s not just to maintain creditworthiness that you need to make sure you meet all the repayment obligations on time. Lenders tend to be far less tolerant of businesses missing payments than consumers and charges are higher. If you’re missing payments or making them late then you will start accruing fees that will add enormously to the cost of your business debt. These are additional expenses that won’t have been factored in to your budget and can quickly spiral out of control. All it takes to avoid this extra expense is carefully scheduling and looking ahead to ensure there’s enough in the bank to cover the outgoing payment.
5. Consolidating debts
If you’re stuck with a really unfavourable rate of interest on a couple of business debts then you might be able to cut the cost of those debts by consolidating. Consolidation loans bring your debts together into one single loan. They can be beneficial in terms of simplifying debts that might be spiralling out of control in a costly way and avoiding missed payments. Consolidation loans can give you the chance to sort business debts out by switching to a single payment instead of juggling several. The key feature when making a consolidated business loan decision is to find a loan with a better rate of interest than the ones you’re already paying.
6. Pay your debts off more quickly
Debts are fairly straightforward to deal with – if you pay them off more quickly then you’ll pay less interest over time. So, one of the easiest ways to cut the cost of a business debt is to repay early or overpay on each repayment. If your business experiences a surge in orders or gets a tax rebate etc consider putting this cash towards paying off business debts. Although you’ll need to look out for early repayment penalties, most loans are still cheaper when paid off early, even if there is a small penalty to pay. You could reduce the interest you pay and save your business a lot of money.
Author: Shruti Gupta
Shruti is a blogger & a digital marketing consultant with lots passion to write about technology ,startups & other niches. She has contributed to a number of famous websites. She lives and breathes in digital marketing. Her aim is to spread her thought-provoking ideas to all generations. Stay tuned with her at: Twitter @shruti_gupta01 or via skype : shrutigupta2811
