How to repay a business loan

25 May 2022

If you're considering taking out a business loan, you're probably thinking about the logistics of paying it back. Whether you're using finance to fund growth or keep things moving, you must stick to your business loan's repayment schedule.

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Repaying your loan according to its terms is essential. Failing to do so could put your personal and business credit score at risk and any assets you used as collateral. Missing payments or defaulting on your loan could also impede your ability to access the capital your business needs to grow in the future.

Paying back your business loan

When you apply for a business loan, you should be aware of all the details, including:

  • Standing order

  • Business loan amount

  • Loan term (how long you'll have to repay, e.g. two years)

  • Repayment due dates

  • Interest is fixed or variable

  • Loan payoff amount 

  • Repayment fees

If you're unsure about any of your business loan's terms or requirements, speak to your lender - they will be able to explain them to you. Once you've been approved for a loan and the money's in the bank, you'll start your repayments; how you make said repayments will depend on the type of finance you've taken out. 

You might pay via:

  • Standing order

  • Direct debit

  • Your outstanding invoices (invoice finance)

  • A percentage of your customer card payments (merchant cash advance)

If you can't repay your business loan

If you fail to meet the terms of your loan, you may be charged late payment fees, administration fees and additional interest. The lender will record any missed payments, and you could find it more challenging to get future finance - particularly if you default on the loan. Defaulting typically occurs when you don't meet the repayments for three to six months (the details will be in your business finance agreement). 

If you've taken out a secured business loan, the lender could claim the asset you used as security to recoup their losses. If you've offered a personal guarantee, you'll have to repay the loan through personal means. 

The important thing is to be open and honest with your lender. If you can't make your loan repayments because of cash flow disruption or something else, contact your lender straight away, and they can discuss your options. You might be able to refinance your business loan to move to one with more favourable repayment terms and interest rates. 

Funding Options act as an intermediary between businesses that require finance and specialist lenders who can provide it. Some of the available products are designed to help companies manage cash flow, grow, or overcome challenging situations.

You can access support and tips for coping with business debt through the government-backed Business Debtline, run by the Money Advice Trust.

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Repaying your business loan early

Some business owners can afford to settle their loans early. If you find yourself in this position and want to pay early, consider a few things. You should discuss your options with the lender and check the terms of your loan agreement. Bear in mind that paying off a loan early could divert capital away from other areas of your business. 

Choosing the best type of business finance

The "best" type of business finance will depend on your business' needs and circumstances. An unsecured business loan might be more appropriate if you don't own assets or would instead not offer business security. A merchant cash advance might work if you'd instead repay your finance according to your takings.

Some types of funding are designed to be used for specific purposes. For instance, if you need to purchase equipment, vehicles or machinery, you could spread the cost using asset finance. If you're a sustainable business or want to fund an environmentally-friendly initiative, product or service, check out green business finance

"The process was seamless and happened quickly. It was a lot more streamlined than the painful bank processes where you've got to provide two to four years of books and jump through seven or so hoops." - James Auctioneers on Funding Options.

When you use Funding Options to find business finance, you'll have access to a Finance Expert who can guide you through the application process. They'll be on hand from the beginning to help explain things to you. Check out some of Funding Options' customer stories to learn more about other businesses' funding journeys. See what you could be eligible for today.

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Vivek Seda
Vivek Seda

Asset Lending & Property Team Lead

Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.

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