Should You Repay A Business Loan Early?
When you take on a business loan to support your business in some way whether the monies are to be used for say property purchase or buying machinery you will agree a repayment term with the lender usually over a number of years. It is quite likely that the loan will run its full term with you making capital and interest repayments on a monthly basis.
However, there may be an occasion when you have the funds available to repay the borrowing early. For instance, perhaps your business has had a much better than expected trading year and you have surplus funds available just sitting in your business current account. So, should you repay the business loan early?
Well, there are a number of factors that you may wish to take into account before reaching a decision as to the most suitable way forward. For instance, would your lender charge you an early repayment fee for repaying the business loan early? You should check the terms and conditions as some lenders do charge such a fee and some lenders do not. If the lender does, is it financially viable to repay the loan before it has run its full term?
Another consideration is whether the monthly repayments are proving difficult to maintain. If they are then you may wish to consider repaying the loan early using the surplus funds you currently have available.
If the repayments are still affordable, could the surplus funds sitting in your business current account be used for some other purpose that would potentially be financially more beneficial to the business? For instance, could the funds be used to buy additional stock that could be sold or materials bought that that could be used to manufacture goods that could be sold to increase the profitability of the business?
Looking ahead, are you going to want to move from say rented premises to premises that you wish to buy in a year or two’s time? If this is the case, do you want to retain the surplus funds to be used towards the property purchase?
As you can see, there is obviously an awful lot to think about. Therefore, you may wish to get some professional advice as to the best way forward before making a decision as to whether to repay your business loan early or still keep it running its full term.