These days, small business owners are turning to bank loans, as investors are unfortunately offering tougher terms in return. Banks usually ask for tangible items such as personal homes and bank accounts from their customers, which is actually a dangerous feat for small business owners. They risk losing not only their businesses, but also the house that they are living in, or even their own personal savings. Remember that if you lose your business, you lose your personal assets as well.
It’s always a win/win situation for the bank: once the borrower fails to pay the required amount from their debt, the bank or lender can seize their private properties and sell them to make more money out of it. However though, most of the new entrepreneurs out there cannot help but ask their bank for some money to be able to start their business. And hey, bank loans isn’t all that bad - if you just schedule your payments properly and earn the trust of your lender, then you’re on to a good start. Here, we show you how to pay off your bank loan without the risk of losing your properties and finances.
1. Never overborrow
Know what your limits are and do not exceed it. When borrowing, banks usually offer additional money for you to borrow. You might be tempted to take in that extra $15,000, but you should definitely resist it. It might seem a small amount to pay off in increments, but eventually, you’ll find it hard to repay that extra. Make sure to ask your bank to give you a quote of the best amount that you're sure you’ll be able to pay off, based on your regular income.
2. Assess what the company needs
Compute everything that the company needs. If you need help, you can hire someone to do the costings for you. Borrow what you only need from the bank, never live outside the business’ means.
3. Separate your personal finances from business finances
Do not attempt applying for just one loan for your personal and business finances, as this most probably will cause confusion. This can easily lead to you going overboard with your personal finances, thinking that getting a small amount from your business finances would not hurt - until one day, you realize that every dollar you’ve borrowed from the bank is all gone. Try practising a bookkeeping perspective to keep yourself from doing this mistake.
4. Pay your business loan first
You wouldn’t want to lose your house just because you didn’t pay your business loan on time, would you? Your company can probably do without the amenities for a few weeks or so, but not being able to go home because you don’t have one can be disastrous.
These tips will help you form a healthy relationship with your bank, and earning their trust is a huge thing. If you find this article helpful, then you might want to check this out. Good luck with your application, and never forget our tips!