How To Repay Business Loan If Business Is Incurring Losses

With economic activity coming to a standstill in the wake of the global pandemic, most businesses, especially SMEs are reeling under the weight of growing debt. Companies are facing a difficult choice of whether to keep their business afloat using whatever reserves they have, or use it to pay off the loan and risk closure.

The situation is tough indeed, but then, nobody ever said that running a business is easy! Whether you have missed your EMI payment or wondering how to pay back business loans without losing all your money, here are some common measures that you can take to salvage the situation. This way, you won’t have to file for bankruptcy. 
 

Cut unnecessary costs to free up cash 

Revisit your expenditures and ditch unnecessary ones like software subscription, expensive systems and also office space, if you’re paying rent. Shift to working from home. If you have outstanding payments due from customers, ramp up your collection efforts and sell any unused or old equipment/scrap etc. This should free up some cash, so you can use the same to repay business loans.
 

Prioritize debt payments 

As a business, you probably have multiple debts like bills to pay, loans to be paid off, credit card bills, office expenditure etc.  Prioritize. Focus on paying off debts with high interest rates first, such as credit card bills, followed by any secured loans. Paying off creditors etc. can free up your assets too. Take the advice of your accountant if you have one, but sorting out your finances is critical at a time when your sales are dwindling. You can even consider taking a consolidated loan to pay off small existing ones (refinancing). More on this in the later section.
 

Talk to your lender

This point cannot be emphasized enough. However, it is imperative that you talk to your lender and inform them about your condition. Explain your financial situation and what measures you are taking to manage the situation at hand. Be honest and forthcoming about your issues. Ask the lender about various possibilities. Lenders are generally accommodating. For example, the current COVID-19 crisis saw many financial institutions issuing moratorium of three months or so on loan repayments.
 

Loan restructuring

Simply put, debt restructuring means revising the terms of your existing loan by reducing the rates of interest on business loan or extending the repayment tenure to ease the financial burden. That way, your EMIs will come down and it will be easier for you to manage your monthly payments. Again, it’s important to talk to your lender about the provision, which will take you back to the previous point.
 

Loan rescheduling 

Loan rescheduling is similar to restructuring as it involves extending the tenure by allowing some grace period to the borrower. Or, the tenure can be extended by lowering the interest or adding more number of instalments to reduce the monthly EMI amount. In most cases, the interest rate remains the same here.