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- 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.
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 However, you need to have a steady cash flow so the funds will always be available when the payment is withdrawn from your account.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.
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.
Paying off your loan early may cost more due to prepayment penalties, which lenders use to recoup lost interest. These fees are common with fast business loans, and if payments are made daily or weekly, businesses won’t save money — or could end up paying more — by repaying 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.
Businesses should utilize a business loan calculator to estimate factor rates to interest rates and evaluate potential savings against prepayment penalties. This can help them determine if settling the loan ahead of time makes sense and make informed decisions about loan repayment strategies.
Lenders using interest rates run the risk of losing out on money if the loan is paid off early and they don’t charge prepayment penalties. 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 repay the loan early.
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 origination fees. If the amount of money you’ll save with a lower interest rate is offset by the origination 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 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.
Frequently asked questions
A fast business loan is a type of small business loan that offers quick financing to businesses with an immediate need for cash. They often have streamlined application processes, lenient lending requirements and shorter approval times.
You manage a business loan by prioritizing your bills, setting up automatic payments and making additional payments, if possible, to decrease and repay the loan ahead of schedule.
How fast you can get a business loan depends on the lender, but it is possible to get approved for a loan and receive funds the same day.