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How to Pay Back a Loan to Start a Business


How to Pay Back a Loan to Start a Business

You don’t need to have a high IQ to know that starting a business requires a lot of money. So unless you have a lot of money from saving, or maybe you inherit a huge sum, having money to start a business is not that easy. Many people opt for a loan to start their business. However, this is a big decision that can result in a disaster if you are not careful.

 If you need to take a loan, then follow these steps to make sure you can repay it while making the most out of your business at that time. 

 Tips to pay a loan for your business

The key here is budgeting. If you are taking a loan you need to create a budget for the business. This is the best way to keep an eye on your income and your expenses to have a control on how you are doing every month and take actions if your numbers are getting close to the red. 

 We often said that we need to be realistic when it comes to having a business. But if you have a loan to pay, you need to be more careful and realistic than ever. You need to pay your loan without sacrificing having a cash flow to operate your business. Paying your loan while not having enough cash might put you on the track to fail. 

The most important thing you need to do when setting up your goals is to make sure you are making constant payments to the financial institution where you requested the loan and make sure to pay on time, in this way you will avoid any late fees and penalties that can affect your cash flow even more. If you want to make sure you never miss a payment date, set automatic payments near the date, so you don’t have to be worried about manually making the payment. 

Struggles with loans

 If you are having problems when applying for a loan, you are not alone. This is a crucial step that is complicated depending on the situation you and your business might be in. 

One of the things you can do if you are having problems when applying for a loan is getting a cosigner. If they have a better credit score as you and agree to be responsible for the loan, your chances of success will be higher. 

One of the biggest issues any business owner can face are difficulties to make monthly payments when things are going slow. In these cases, the best thing you can do is refinance your loan. This will help you get a new loan with more favorable terms and conditions that might include a longer repayment time or a better interest rate.

Also, consider that setbacks are always bound to happen and this will affect the possibility of paying your monthly fees. When this happens, the worst thing you can do is panic. Take a deep breath, make a small plan and get back on track as soon as possible.

Consider getting some assistance from a financial advisor that can help you set a budget aligned with realistic goals to be able to get out of the turmoil as clean as possible. If you want to learn more about loans, browse this site.


Paying back a loan to start a business can be a challenge, but it’s important to remember that it’s an investment in your future. These tips are a way to increase your chances of repaying your loan without any incidents.

Remember, it takes time to repay a loan and it’s a matter of taking small steps and always moving forward. Don’t get discouraged if you don’t see results immediately, enjoy the ride.


How Small Business Should Think About Financing

It’s no secret that over half of small businesses close their doors within the first five years. One of the critical problems that often occur has little to do with the innovation, ingenuity, or work ethic of the small business owners themselves, but rather the lack of access to sufficient capital to cover the ebbs and flows of their operation and its associated costs. 

Scaling any idea or enterprise, to me, is less often about “entrepreneurship” —and other catchy terms we can print on a business card— and more about meeting the demands of others, like payroll and customer expectations. Simply put: small business owners need capital resources— they need cash. 

Historically, small businesses have had limited options to access capital: savings, friends and family, credit cards, traditional bank loans, or the occasional SBA loan. Enter the financial crisis of 2008-2009, which ushered in a new regulatory environment that contracted these historic capital resources, thereby creating the market-driven need and demand for non-traditional banking options.

Consequently, we find ourselves operating in a new era, one in which enterprising nonbank funders have brought novel and different capital products to the small business market. This has been largely accomplished through an ambitious mix of fintech and financial innovation. These previously unavailable financing options give small businesses more resources to consider than ever before. Now their next step is to explore them and consider how their small business might decide on the best option for their specific needs. 

As we contemplate these innovations, here’s a quick list of some of the best financing options available to small businesses:

Business Term Loans: Best for businesses looking for working capital, equipment purchases, or to purchase inventory or other fixed assets. For short-term loans, it can often be matched to a specific project and repaid to coincide with the completion of that project in 6 to 12 months. For longer-term loans, the repayment can be stretched out to 3 to 10 years, but these often require higher levels of collateral coverage or a personal guaranty by the business owner. 

Pros: Great product for larger one-time investments with targeted cash loans flow that payments can be matched. 

Cons: Larger dollar amounts and a longer payback term will require increased time, energy (think: bank meetings and interviews), and documentation. 

Equipment Financing: Best for one-off purchases like restaurant equipment and machinery. 

Pros: no upfront spend; if the business owner has impaired credit the fact an asset is involved as collateral can make it easier vs. purchasing the equipment; and tax-deductible.

Cons: Overall cost is usually more expensive in the long-run; cost inclusive of fees if the lease is terminated early can be substantial; and must take into account all terms and conditions that can be complicated (who handles and addresses a break-down in the equipment? etc).

Small Business Administration (SBA) Loan: Best for business owners who need capital for a variety of longer-term business expenses. It is government guaranteed so the process can be daunting and is processed through a bank that has an SBA loan program. 

Pros: Cost and longer-term repayment; great product for owner-occupied real estate.  

Cons: Requirements are strict; process is time-consuming (60 to 180 days); high upfront fees; and requires strong personal credit scores.

Business Line of Credit (“LoC”): Best for businesses with more volatile sales and cash flow. Flexibility to drawdown and repay based on the needs of your business.  Often secured by accounts receivable and inventory. Some LoC’s offered by FinTech operators do not require business collateral but do require a personal guaranty.  

Pros: Can access quickly (assuming facility is in place) to solve urgent issues or expenses; and great for managing working capital needs and the business’ short-term cash flow needs.  

Cons: Reporting can be much more intensive vs. other products available; upfront and ongoing fees can be expensive, especially if the LOC is rarely drawn down.

Revenue-Based Financing: This is a financing option where the repayment schedule is tied to the future revenue of the business. The genesis of the product is that the funder operates as more of a partner and is taking some level of “equity-risk”. If the revenue decreases or the business fails, the repayment is either stretched out or in the case the business fails the funder has no recourse. Small businesses can utilize this product for project financing, working capital, growth investments, or short-term needs. 

Pros: Quick access; repayment risk mirrors the revenue; no business or personal recourse except in the case of fraud.  

Cons: Products are generally 12 months or less; more expensive given level of risk with limited recourse; reporting can be intensive as changes to payment schedules requires bank and financial verification.

Invoice Factoring: The business can turn its unpaid invoices into immediate cash. The invoice factoring company collects directly from the customers and distributes capital to the business, net of its fee. 

Pros: good for managing cash flow; typically a short-term financing product (30 to 90 days).  

Cons: cost can be expensive, especially if repaid much quicker than anticipated; can be disruptive notifying customers to change their payment instructions to the factoring company; requires technology integration or higher level of reporting and the business’ customers will be dealing directly with your funder if they delay payment – not you as the business owner.  

Angel Investors/ Venture Capital: Best for small businesses who want to scale quickly. 

Pros: entrepreneurial background provides increased insights and foresight vs. dealing with alternative finance providers, banks, or the government; larger investor network to leverage for additional funds or additional business; and capital remains in the business (vs. interest costs). 

Cons: Higher rates of returns expected (typically at least 5x their investment); requires giving up equity in the business; process will be intensive; typically reserved for high visibility, disruptive companies pursuing large addressable markets on a national or global scale; and will require operating agreement additions to governance to protect their investment in the case of underperformance.

Bootstrapping: Best for businesses with principals that have savings or expendable income who want to preserve equity ownership and cash in the business. 

Pros: maintain ownership position and keeps all cash generated either in the business or available for dividends. 

Cons: Growth limited to the owner’s cash position; risk missing market opportunity because thinly capitalized; challenging if a short-term need requires more cash than available.

While the pros and cons of this list provide a guide to financing in 2019, any financing decision should ultimately come down to your assessment of the cash flows of the business (today and in the near term), demonstrated capacity to handle credit, costs versus profit opportunity (positive ROI), and repayment thresholds. 

The good news is, enabling technology allows small business owners to access various forms of capital quickly and efficiently. There is no day like today to explore options to fund entrepreneurial dreams. 


Vincent Ney is a founder and CEO of Expansion Capital Group, a business dedicated to serving American small businesses by providing access to capital and other resources so they can grow and achieve their definition of success. Since inception, ECG has connected over 12,000 small businesses nationwide to approximately $350 million in capital