Loans and equity are important to a business. You take out a loan to increase capital which supports the business or fund growth and expansion. After the creditor accepts your loan request, you now have to work to ensure the loan capital is beneficial to the business. Investors and lenders depend on your leadership and management skills. If you prove you are a dependable leader and manager, they will be more than happy to give you additional funds on your next request. Conversely, you are answerable to them in case you mismanage the loan capital. The practice guide for business loans listed here will assist you in management of your loan capital.
Store the Loan Capital in a Separate Account
Do not mix your business and personal finances. The first advantage to using this loan management practice is that it will protect you from any negative financial consequences the business encounters. The second is that it will protect the business from any personal financial problems you may encounter. Third, it will help you to manage your finances better. Paying attention to the business finances is simpler and easier when they are in a distinct account. Always have a separate account for your business finances.
Regularly Update the Balance Sheet
The balance sheet shows the health of your business at any given time. As soon as you receive the loan capital, update the balance sheet to reflect the new liability and asset that the business now has. As the business makes use of the new capital, you should keep updating the balance sheet. Avoid the temptation to keep the business running without making updates to its balance sheet. This way you always know what there is to spend or to keep for other expenses.
Update Your Business Plan
Your business plan is the guide for your operating activities, investing activities as well as financing activities. These activities are reflected in the Cash Flow statement. Operating activities include the day to day profit making activities of the business. It is a record of the amount of money made from sale of products and services during a particular period. Investing activities are sources of money from investments of the business. These may be any purchases or sale of assets or any loans made to customers. Financing activities are sources of money from investors or creditors. A loan immediately offsets this part of the Cash Flow statement, before affecting the other two. All these activities are included in the business plan. The business plan dictates what happens at what point in the course of the business. When you get the loan, you will have more money to fund investing activities, which in turn will increase the cash flow from operating activities. Update your business plan at this point to ensure that the loan capital is planned for in advance.
Manage Your Spending
Once you have the record keeping and business plan updated to reflect the new loan capital, you should ensure that every rand is spent according to plan. The purpose of the loan is on the business plan prior to the creditor’s acceptance. Just stick to the plan. Whether the loan capital is meant to support existing business activities or for growth and expansion of the business, ensure the money goes into the activity it is meant to fund. Since things do not always go according to plan, having emergency funds and petty cash on the budget is also a good management practice. You should also check what small business funding might be available at the time. Additionally, to prevent frivolous spending, make sure that any other person with access to the business finances knows how much they are allowed to use on any single activity or purchase.
Automate Loan Repayments
To ensure you do not forget to make a loan repayment, you can automate the loan repayment using secure methods like debicheck debit orders. Defaulting on a loan repayment can be detrimental to the credit score of the business. The business needs a good credit score to access bigger loans for greater growth and expansion. Maintaining a good credit score is beneficial for this reason.
Liaise with the Lender
Always ensure you are in close communication with the lender. This is especially true when you need assistance changing the terms of the loan or postponing a monthly repayment. Lenders do not want you to miss a monthly repayment. Therefore, they are usually ready to liaise with you to help smooth the terms of the loan in case of an unforeseen circumstance.
Should you prove that you can manage the finances of the business well, you open up the business to more investors and a higher loan. The tips for managing business loans that are listed above will help you do this.