Understanding early repayment with business loans
Sound financial planning and debt management is crucial to sustainable business success. As part of this process, many business owners are in the position of needing to decide whether paying off business loans and finance early is going to be the best option. If you’ve current got a loan and are considering the pros and cons of early settlement, take a look at what the benefits might be of paying off short- or long-term finance early.
Paying off short-term finance early
Short-term finance often has less flexibility for early repayment than a longer term arrangement: often the total cost of the loan plus interest is fixed, so you will still have to pay the same amount, even if you repay early. In addition, if you pay the money off early, you may inadvertently loose opportunities to make the money work for you more profitably elsewhere: for example, if you divert money away from growth strategies towards early loan repayments, this could have a negative impact on the longer term success of your business. In many cases, there are few advantages to paying off short-term finance before necessary.
Paying off long-term finance early
Paying off business loans early will benefit your business if it saves you interest; otherwise, it may be wiser to profile repayments to match your profit curve: this would work by meaning that if, for example, your profits increased by 25%, your loan repayments would also increase by 25%. This allows you to clear your debt earlier (therefore potentially meaning that you will have free cash to spend on other things more quickly), without meaning that all your additional profits are diverted into loan repayment.
Early repayment with Capify
One of the advantages of using Capify’s products is that there is significant flexibility in the loan term. Although the total amount repayable is fixed, regardless of how long it takes, it’s possible to clear the loan more quickly if you wish. Capify charge a factor rate, not an APR (this means we take a percentage as repayment, rather than a fixed amount). For example, when it comes to our MCA, clients pay a percentage of their card sales on a monthly basis. Because takings vary each month, your repayment will also vary in value: on a quiet month, you will repay less, as sales will be lower. Conversely, when you have a boom month, your loan repayment value will increase.
Flexibility extends to our small business loan as well. When it comes to our business loan, clients pay a percentage of their weekly deposits. Again, if you’ve had a quiet week, you’ll pay less than if business was brisk. Weekly payments facilitate cash flow and prevent the need to make a significant
payment once a month, which can be difficult to budget for. Obviously, if you have a series of good months, your loan will be paid off more rapidly than if business is going through a slump.
Get in touch with Capify to find out more about your early repayment options.
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