5 Do’s And Don’ts When You Receive A Business Loan

Working in a micro-lending firm, I’ve seen how different kinds of small business owners and even aspiring entrepreneurs behave when their loan application is approved. While a lot of them have used the fund for their businesses, a couple of them have used our money to impress that girl they told “I’m expecting something hoooge”.

5 Do’s And Don’ts When You Receive A Business Loan

Just imagine seeing the humble person that was in your office with shirt and tie swearing that he will buy more products for his shop, uploading videos of himself on Instagram, chopping life in Hustle and Bustle barely 24 hours later. Aaaahh! Investors’ money.

To be fair, it might be someone paying for them but if it’s not, Mr. Anthony, just know it will not be better for you. Fast forward to “paying back the debt” day, these kinds of people run into problems and they end up either being humiliated or getting in trouble with the law.

While this story is a bit of a stretch, some entrepreneurs always have problems with paying back their loans because they misuse it. In this article, I will show you 5 do’s And don’ts when you receive a business loan. This will not only keep you from having debt problems but will also help you maximize profit from the loan.

Do’s

1. Use It Quickly

As soon as you get the loan, use the money for everything you need to use it for. Leaving it just laying around in your account can be dangerous as you might be tempted to spend it on something else or to meet an emergency.

2. Keep Meticulous Financial Records

It’s quite easy for an entrepreneur, because they are usually busy, to forget to keep record of their finances and it can have negative consequences. Not having accurate financial record makes you not know how much expenses your business is incurring and how much profit you’re making.

The financial information helps you know where to reduce costs and how to increase profits. If an entrepreneur doesn’t have the record and their expenses is more than profit, they will have problems when it comes to paying back.

As an entrepreneur, you should be conscientious about your book keeping. If you can, spend money on an accountant to do your financials and always review it to take corrective actions that will maximize your profit. Also, you should either meet a business consultant who can advice you on making wise financial decisions or invest in learning financial management.

3. Create A Budget

This is a great way to manage your finances. It is important to plan every kobo of the loan you’ve received before spending it. Do not touch the money until you’ve done so.

A budget shows a detailed plan of how you intend to spend money monthly, quarterly or annually. You basically outline the best way you think you should use your business funds.

A budget will help you:

Know what you are likely to earn in the future.

Plan what to do with the revenue (This will help you plan paying back your loan).

You can monitor your business’s performance to identify problems and plan for the future.

A good budget contains estimated revenue, fixed and variable cost, cash flow and profit. Many businesses who budget their finances have control over the money in their purse than those who rely on vibes and insha Allah and hence, are less likely to fall into debt problems.

4. Plan How You Will Pay Back

One major mistake entrepreneurs make when they receive a business loan is that they forget about paying back the loan till it’s close to their payment date. Some even totally forget they are on a loan and are shocked when their loan company calls to remind them of their due date.

As an entrepreneur, you can and should plan to pay back your loan from the day you receive it. Depending on the kind of loan payment schedule you’re on, they are two ways you can plan to pay back your loan.

  • If your loan company accepts installmental payment, set a daily, weekly or monthly payment structure where you send a portion of your profit to the loan company to offset your loan.
  • If you can only payback once, send a portion of your profit daily, weekly or monthly to an account that you cannot easily access until the day you’re paying back the loan.

Piggyvest has a safe lock feature where you can save money you won’t easily have access to till a specified withdrawal date.

Don’ts

5. Don’t Use It To Meet Personal Needs

Seeing money in your account can make you tempted to spend it, especially if you have pressing personal needs. You must not give in to this temptation. You might tell yourself that it is just a small amount you want to take out of it but if you can take from the loan once you can take out of it several other times.

Using business loans for personal needs is terrible because spending on personal needs is a liability. It doesn’t generate any funds for you. You might think spending one 3k here and one 5k there will not affect the money so much but these little costs accumulate over time and you will have shortage in funds.

Conclusion

If you have defaulted on your loan, DO NOT hide from or dodge your loan company. It is never a good look on you when the loan company has to send a loan collection agent to you. It is wise to be upfront and honest about your situation. This shows the loan company that you intend to pay back and they could be lenient. They will come up with a payment plan that can help you pay back within a longer period of time.

Meanwhile, you can look below to find some of our recent articles specially curated for you;

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