Monday, 20 July 2015

3 Reasons Why You Should Regularly Check Your Business Debt

When it comes to paying off debt, many business owners just go on auto-pilot. They set up their payment plan, usually through automatic bank withdrawals, and then don’t give their loans a second thought from that point on.

While this lapse is understandable, given our busy world, it could also mean your business is missing out on opportunities to create a better debt strategy. Here are the top three reasons how a biannual debt review could benefit your business:

1. Your credit score may have improved.

Building up a credit score takes time. When you were just starting out, you likely didn’t have the credit history needed to qualify for loans at the best interest rates. As a result, you’ll end up owing more interest as you pay off your debt.
If you’ve been making all your debt payments on time, though, your credit score will have steadily improved. You should be able to qualify for future loans at a lower interest rate. Your credit score could also help you qualify for a better deal on your current loans through refinancing at a lower rate. This would immediately lead to lower monthly payments. So, it makes sense to review every couple of years, because two years of consistent, on-time payments can lead to a noticeably better credit score.

2. Your financial situation and goals may have changed.

As time goes by and your business grows, your financial situation will change significantly. This can also change the ideal debt strategy for your company. For example, if you’ve grown your revenues, you may find yourself with a significant amount of extra cash. It may make sense to use this money to pay off your debt now and avoid paying any extra interest.
On the other hand, perhaps your want to continue expanding your business but don’t have enough money. During your debt review, you can see whether you can access new sources of lending or if you’ll have to fund your expansion another way.

3. You may have access to new products,

One other reason to schedule a biannual debt review is that you may now qualify for new products that better fit your goals. New businesses typically don’t have many assets. After a few years, though, your business may have accumulated valuable assets, like inventory or equipment. You could use these as collateral for an asset-backed loan, which would allow you to qualify for larger loans and possibly a better interest rate.
If your credit and financial situations have improved, you may also now be able to access a line of credit, which will give you much more flexibility to manage your financing. If you have a number of small loans, you might discover that you can lower your total debt payments by consolidating everything into one loan.
These are just a few of the possibilities. Without a regular debt review, however, you’ll have no idea whether you even have access to these new products.
Too many business owners are hurting their companies with an ineffective debt plan because they don’t know their options. Make sure this doesn’t happen to you, by scheduling your biannual debt review today.

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