There are around 2.31 million businesses in Australia, and roughly half of them have taken out some form of finance or loan. Having access to funds through a business loan is important, as it can help your business manage cash flow and seize new growth opportunities.

Understanding your loan repayment period and paying off loans early can benefit your business in different ways. Aside from peace of mind, paying off loans early can lead to business loan savings, improved cash flow, and strengthen the business’s financial position.

If you’re a business owner with a business loan, here are some reasons why early loan repayments can set you up for long-term success.

Benefits of early loan repayments

For businesses that pursue funding, early loan repayments can be a great way to resolve their debts ahead of time. Repaying business loans ahead of schedule also offers the following attractive benefits:

1. Pay less on interest

The longer you take to repay the loan, the more interest you may accrue – which can add up over time. Paying off loans early can save you money by potentially paying less in total interest – freeing up funds for other business needs.

2. Improve cash flow

By eliminating monthly loan repayments, you can increase your cash flow and have greater flexibility for investments, unforeseen expenses, and scaling your business.

3. Improve credit score

Another benefit of early loan repayments is that it can help your business credit score. Lenders like to see that you are able to manage debt and pay off loans. When you pay off loans early or make timely loan repayments, it shows lenders that you in control of your debt. This can help your credit score which can be beneficial if you ever need to take out a business loan in the future.

4. Improve chances of securing a new loan

Demonstrating your ability to pay off loans early can enhance trust and credibility with lenders, potentially leading to more favourable terms on future financing arrangements. This can lead to business loan savings and access to higher loan amounts for another business expansion.

5. Financial freedom

Finally, repaying business loan debt early means there’s one less financial commitment on your plate. This offers peace of mind and the freedom to pursue new growth opportunities without the loan repayments hanging over your head.

How early repayments work

Understanding how early loan repayments work can help you save money and improve your business’s financial health and planning.

To help you gain a visual, imagine your business taking out a loan of $50,000 with a 5-year term at an interest rate of 8% per year. Normally, you’d pay about $1,013 per month, totaling around $10,780 in interest over the 5 years.

Now, let’s say after 2 years, you decide to pay off the remaining balance of the loan. By this time, you’ve already paid off part of the principal and interest, and the remaining loan balance is around $32,000.

If you pay off the $32,000 balance in one lump sum, you avoid paying interest for the remaining 3 years, saving you approximately $5,700 in interest.

By repaying the loan early, you increase your immediate cash flow and reduce the total cost of the loan, freeing up funds for other business needs.

Knowing your loan repayment obligations

To help you with your early loan repayments, it’s critical to know the amount you need to pay back, upfront. Understand the cost of your business loan including the terms & conditions, interest rate, repayment schedule, and if making early repayments incurs any penalties or fees.

Prospa offers business loan repayment terms of 12-36 months, with the freedom to pay out your loan early and save on interest. If you decide to repay your loan early, contact our friendly business loan specialists. They will give you the repayment details and the early payout amount, which includes the remaining principal, any accrued interest, plus 1.5% of the remaining principal and any outstanding fees.

To decide what’s best for your business, it pays to do some calculations. See how much you could save by paying off your loan early, then subtract any fees. Overall, early loan repayments offer business loan savings, ultimately helping you to achieve your business goals faster.

Conclusion

With Prospa’s small business loans, you are given access to funds when traditional banks might say no. By taking advantage of business loan options, you not only gain access to the capital you need to grow your business but also the opportunity to make early repayments. This means you can expand your business, seize new opportunities, and manage cash flow more easily. Additionally, early repayment options provide savings on interest, further benefiting your business’s financial standing.

If you are looking to secure business financing, you can apply for a Prospa Business Loan today. Find out more here.