Business requires sufficient finance to grow and there are several costs involved in running a business such as expenses towards staff, inventory, equipment, etc. Many SMEs apply for a business loan to carry out business operations smoothly. Many banks and NBFCs also provide a business loan emi calculator that uses the interest rate on loan to calculate the EMI and provide an estimate of the amount that is to be paid every month.
But with the ongoing pandemic lockdown, most small businesses are now under the weight of growing debt. The financial crisis has made it difficult for businesses to pay for business loans and risk closure. In such times it gets quite difficult to pay back your business loans EMIs. Here are some common measures that you can take to salvage the situation. This way, you won’t have to file for bankruptcy and repay your business loan with ease.
1. Cut Unnecessary Cost
Revisit your expenditures and ditch unnecessary ones like software subscription, expensive systems and also office space, if you’re paying rent. Whether you’re taking an aggressive approach towards minimizing the losses towards your business, cost-cutting should be on the top priority. These measures can help your business become leaner and more efficient. You can use better technology to streamline your processes and increase the overall efficiency of the system. Other simpler cost-cutting measures include selling off assets that are of minimal use but carry a big liability or make use of Just-in-Time stocking to keep your inventory levels at their optimum and prevent overstocking. Reducing staff costs can also work in favour of your business.
2. Prioritize Debt Payments
As a business, you probably have multiple debts like bills to pay, loans to be paid off, credit card bills, office expenditure etc. Prioritize. Focus on paying off debts with high-interest rates first, such as credit card bills, followed by any secured loans. Paying off creditors etc. can free up your assets too. Consult with your accountant if you have one, but sorting out your finances is critical at a time when your sales are dwindling. You can even consider taking a consolidated loan to pay off small existing debts.
3. Get In Touch With Your Lender
When you are aware of the financial state of the business it is best to talk with your lender and let them know about your current condition. Explain your financial situation and what measures you are taking to manage the situation at hand. Be honest and forthcoming about the issues you’re facing. Ask the lender about various possibilities. Lenders are generally accommodating. For example, the current pandemic crisis saw many financial institutions issuing moratorium of three months or so on loan repayments. The moratorium period helps to lower the burden of the borrowers towards EMI payments on loans.
4. Restructure Your Loan
Debt restructuring means revising the terms of your existing loan by reducing business loan interest rate or extending the repayment tenure to ease the financial burden. That way, your EMIs will come down and it will be easier for you to manage your monthly payments. It is best to inform your lender about the provision, which will take you back to the previous point.
5. Reschedule Loan Repayments
Loan rescheduling is similar to restructuring as it involves extending the loan tenure by allowing some grace period for you to make repayments. Or, the tenure can be extended by lowering the interest or adding more number of instalments to reduce the monthly EMI amount. In most cases, the business loan interest rate will remain the same here.
Refinance is a good option to repay your loans if the debt is costing you a lot in terms of interest payments, or if you feel it’s risky to continue, or you have multiple small debts. It’s always better to take another loan from a different lender, if available at better rates and at better terms, to pay off all existing debts. It is a good idea in certain cases as there will be just one loan and a single EMI to worry about, rather than multiple EMIs. It will be easier for you to track as well.