Explaining SBA Loan Repayment Options

By Tim Kelly

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Understanding SBA Loan Repayment

The United States Small Business Administration (SBA) has different forms of funding that can help every small business. From equipment financing to covering startup costs, an SBA loan can be beneficial for entrepreneurs. However, it is important for business owners to understand the options for SBA loan repayment.

The SBA loans differ from others because they do not make direct investments themselves. Instead, they set guidelines and the lenders then become loan partners. When a business qualifies for an SBA loan, there will be a minimum and maximum repayment scheme. Repayment options will differ depending on the type of SBA loan have received, and you will need to know how they affect your business projections.

The SBA Loan Repayment Process

After receiving your SBA loan, you will need to start making your repayments. As with all loans, there will be interest to pay. Your first priority should be knowing the difference between the types of repayment terms. These will be fixed or variable.

Fixed repayments: This is a repayment plan where you will pay the same amount on each payment date. It is an advantage for most businesses who have a steady profit margin and a reliable, consistent revenue stream.
Variable repayments: This simply means that the cost of your repayments is subject to change. It could be due to two reasons. If you have a cash advance through some lenders, then they will deduct a percentage of your incomings. For example, if a lender wants you to pay back 15% of every sale that you make, the total repayment amounts will differ depending on your sales. Another reason for variable repayments is if your loan is tied to the prime rate. If so, your repayments will reflect interest rates for business loans and if it increases, your repayments will as well. Of course, this also means that if the prime rate drops, your repayments will reflect that with lower repayment amounts.

The Frequency Of Repayments

It used to be that all loans were paid off in monthly installments. In the modern business space, your loan repayments can be paid on a monthly, weekly, or even daily basis. It will depend on your lender and the terms that you have agreed. The way that you repay has also changed. Checks are no longer the business standard, and most loan repayments are made directly through an automatic bank system, which means that it is essential that you have the necessary funds in your account to make those payments.

How To Repay Your SBA Loan

At its most basic level, the key to making sure that you can repay your loans easily is to ensure that you can meet your obligations at the right time. This is sometimes more difficult to do if you are a first-time entrepreneur. It’s a good idea to talk to others who have received an SBA loan. You will need to consider:

Making a budget: Always ensure that you have money in the bank to meet your repayment obligations. Your budget is essential for any business, so factor in your loan repayments along with your revenues and cash flow. Make sure that you always keep track of your money so that you don’t miss a loan repayment.

“Expect the best. Prepare for the worst. Capitalize on what comes.”
Zig Ziglar, author, salesman, and motivational speaker.

Late Payment Policies: All lenders will have a set of policies in place for when a loan recipient is unable to make a payment. Many businesses will be affected by the inability to meet their financial obligations on occasion. Check the policy of your lender. Some will have a short grace period, which is useful as it will mean that a delayed payment will not start to build any late fees. It’s essential that you keep on track with your repayments, and if you do miss them, knowing where you stand with your lender will be very useful.
Communication is essential: If your repayments have either stopped or become irregular, then your lender may assume that you have defaulted on your loan. It can lead to credit score issues in the future. If your repayments are becoming difficult, don’t assume that it’s best not to contact your lender until you have a solution. Always approach them and discuss your late payments. The sooner that you do this, the more likely that they will be able to provide solutions that suit you both.

“There is no greater loan than a sympathetic ear.”
Frank Tyger, columnist Trenton Times

What To Do When You Have Paid Back Your SBA Loan

Chance are that the first thing you do after making your final loan repayment is to crack open a bottle of champagne to celebrate! However, it’s vital that you complete a few additional tasks as well.

Your first job is to make sure that any automatic payments you have set up are canceled. Banks will continue to pay automatic payments, and it can be a pain to arrange refunds If this does happen, talk to your lender and they may be able to return your money before it is processed.
Next, you need to check UCC records to make sure that your lender has released any liens on your company. If they haven’t yet done that, then you will need to contact them. Having any liens left on your business will make it much harder in the future to get business loans.

To Conclude

An SBA loan is one of the most convenient loan types to apply for, but the process of application can be time-consuming and occasionally complicated. It can be off-putting for those that are making an SBA loan application for the first time. It’s essential that you take the time to fill out all of the application forms completely, and don’t assume that you will receive your money quickly. It can take months for an SBA loan to be approved. However, having an SBA loan can truly help your business to grow. Keep an eye on any repayment issues, and your loan could be the key to promoting your future growth.