How to manage a fast business loan

Key takeaways

• Fast business loans have short repayment terms, often with higher interest rates than regular business loans

• Setting up automatic payments will ensure payments are made on time

• Increasing your monthly payment to pay off your loan faster if there are no prepayment penalties

Fast business loans are useful when you need quick access to capital. Other business loans, such as SBA loans, have lengthy applications and longer funding times. But a fast business loan can get much-needed cash into your business bank account, potentially within the same day.

Although convenient, these loans typically have short terms, fees and higher interest rates, which requires businesses to carefully manage them to avoid default and keep their credit scores safe.

Here’s more on how to manage your fast business loan.

5 tips for managing your fast business loan

Due to the higher interest rates often associated with fast business loans, it’s critical to manage them properly so you don’t end up defaulting on the loan or owing additional money.

1. Prioritize your payments

Since fast business loans typically come with higher interest rates, you don’t want to be late on payments or miss them entirely. That will add late fees on top of the higher cost you’re already paying to borrow the money. As you prioritize your bills, your payment for a fast business loan should be at or near the top of the list.

If money is tight and you’re struggling to make this additional payment, look at other things you could cut out of your budget, like monthly subscriptions that are nice to have but aren’t necessities. Compiling a business debt schedule can also help you manage your debt and repayment schedules.

Bankrate insight

Consider using a business loan calculator before signing a loan agreement to ensure you can afford repayments. This can also help you make informed decisions about loan repayment strategies.

2. Use automatic payments

The best way to make sure you’re never late or miss a payment on your fast business loan is to sign up for automatic payments. However, you need to have a steady cash flow so the funds will always be available when the payment is withdrawn from your account.

This strategy is especially useful if your fast business loan requires daily or weekly payments that could be hard to keep up with manually. Some lenders require automatic payments in order to be approved for the loan. Make sure to link your payments to a business bank account that typically has adequate cash.

3. Increase your monthly payment

The repayment amount on the bill is the minimum amount you must pay your lending institution each month. However, if you can pay an additional amount each payment period, this will decrease the total amount of interest you must pay. When you have good months and your accounts receivables are higher than expected, you may want to direct some of those additional funds toward your fast business loan.

If you’re using automatic payments, you’ll need to manually make a second payment with the additional amount.

Bankrate insight

Lenders using interest rates may run the risk of losing out on money if the loan is paid off early. However, in fast lending, lenders often use factor rates instead of interest rates, as borrowers pay a fixed amount of interest, regardless of whether they increase payments or repay the loan early.

4. Pay the balance off early

If your lending institution does not have a prepayment penalty, you may want to pay the balance off before the final due date.

One way to do this is to make higher monthly payments (see #3) until the balance is paid in full. You could also make an early, substantial, lump sum payment. Or you could combine the two: Make higher monthly payments until you have the funds to pay the loan off in full before the final due date.

This will save you money on interest — unless the lender uses a factor rate instead of an interest rate.

Bankrate insight

Paying off your loan early may cost more due to prepayment penalties, which lenders use to recoup lost interest. These fees are common with many different types of business loans, and paying the loan off early could cost a business more.

5. Refinance the loan

Your purpose in getting a fast business loan was to resolve an immediate need. Once that problem is resolved, you could look at replacing that loan with a traditional business loan that carries a lower interest rate. This could make the cost of borrowing the money less expensive and give you a lower monthly payment.

However, before refinancing your loan, you’ll want to factor in the cost of the associated fees. If the amount of money you’ll save with a lower interest rate is offset by the fees from a new business loan, it may not make sense to refinance the original loan.

The bottom line

If your business has an urgent financial need, getting a fast business loan may be the solution. However, since these loans often come from online lenders and carry short terms and high interest rates, it’s important to consider the pros and cons and manage them correctly.

Your keys to success are making on-time payments (preferably automatically), sending more than the minimum payment when possible and paying the balance off early. And, if you see interest rates dropping, you may want to consider refinancing the original loan.