How To Manage A Fast Business Loan

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Fast business loans provide funding as soon as the next business day, making them a great choice if you need money immediately. But they also come with higher interest rates and shorter repayment terms, requiring careful management to avoid default, which can affect your future ability to get additional financing.

Implementing strategies such as setting up automatic payments, increasing your monthly payment and paying your balance off early can help limit the risks associated with fast business loans.

1. Prioritize your payments

Because fast business loans typically come with higher interest rates, you don’t want to be late on payments or miss them entirely. That will add late fees on top of the higher cost you’re already paying 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 this additional payment, look at other things you could cut out of your budget, like monthly subscriptions that are nice to have but aren’t necessities. Compiling a business debt schedule can also help you manage your debt and repayment schedules.

2. Use automatic payments

The best way to manage your loan is to sign up for automatic payments so you never miss a payment. However, you need to have a steady cash flow so the funds will always be available when the payment is withdrawn from your account.

This strategy is especially useful if your fast business loan requires daily or weekly payments that could be hard to keep up with manually. Some lenders require automatic payments to be approved for the loan. Link your payments to a business bank account that typically has adequate cash.

3. Increase your monthly payment

The repayment amount on the bill is the minimum amount you must pay your lending institution each month. However, if you can pay an additional amount each payment period, this will decrease the total amount of interest you must pay. When you have good months and your accounts receivables are higher than expected, you may want to direct some of those additional funds toward your fast business loan.

If you’re using automatic payments, you’ll need to manually make a second payment with the additional amount. Check with your lender to determine how to allocate additional payments correctly to ensure it goes towards the principal and not next month’s payment.

4. Pay the balance off early

If your lending institution does not have a prepayment penalty, you may want to pay the balance off before the final due date.

One way to do this is to make higher monthly payments (see #3) until the balance is paid in full. You could also make an early, substantial, lump sum payment. Or you could combine the two: Make higher monthly payments until you have the funds to pay the loan off in full before the final due date.

Paying your balance off early will usually save you money on interest — unless the lender uses a factor rate instead of an interest rate.

5. Refinance the loan

Your purpose in getting a fast business loan was to resolve an immediate need. Once that problem is resolved, you could look at replacing that loan with a traditional business loan that carries a lower interest rate. This could make the cost of borrowing the money less expensive and give you a lower monthly payment.

However, before refinancing your loan, you’ll want to factor in the cost of the associated fees. If the amount of money you’ll save with a lower interest rate is offset by the fees from a new business loan, it may not make sense to refinance the original loan.

The bottom line

If your business has an urgent financial need, getting a fast business loan may be the solution. However, since these loans often come from online lenders and carry short terms and high interest rates, it’s important to consider the pros and cons and manage them correctly.

Your keys to success are making on-time payments (preferably automatically), sending more than the minimum payment when possible and paying the balance off early. If you see interest rates dropping, you may want to consider refinancing the original loan.

Frequently asked questions

• Is a fast business loan a bad idea?
  

  A fast business loan may not be a bad idea if you need funds immediately. But you must manage a fast business loan responsibly, as they come with high interest rates and short repayment terms, usually two years or less. It’s a good idea to check other loan options before choosing a fast business loan because you may get a better deal.

• Can new businesses qualify for a fast business loan? 
  

  Yes, many lenders offer fast business loans to startups and new businesses. Lending requirements vary, with traditional lenders like banks and credit unions having more strict requirements than online lenders. Some, like Taycor Financial and OnDeck, specialize in startup funding.

• How fast do you have to pay off a business loan?
  

  Payoff timelines vary by lender. Most fast business loans come with short repayment schedules, typically no more than two years from funding. You may even need to make daily or weekly repayments to a fast business lender.