Chances are, if you start your own business, you’ll need a loan. As soon as you finish signing, you’ll probably start wondering how long it will take you to pay it off.
How long it will take you to repay your small business loan depends on the repayment terms of that loan. It’s impossible to provide an answer that will be true across the board because all loans are different and are dependent on the needs of the borrower.
Keep reading for more information on how to evaluate the repayment terms of your loan to determine how long it will take to pay it off.
Looking at Repayment Terms to Determine the Length of Your Loan
When you take out a loan for your business, you’ll sign a lot of paperwork. Hopefully, you and your lawyer read all of those pages before you signed on the dotted line.
In your contract, you’ll find the terms of repayment for your loan. The terms of your loan will help you determine how long it will take you to pay it off.
The terms of repayment will dictate how much and how often you have to make payments on your loan. If your loan calls for fixed payments, you’ll have a pretty clear idea of when your loan will be paid off.
This is true unless you can and do make extra payments to pay the loan off more quickly. You’ll have a minimum payment amount that you have to make each week, month, or whatever you agreed to.
With a variable payment schedule, the amount you pay each time may change. Here’s why you might opt for this type of repayment plan:
You are repaying your loan by deducting a certain percentage of your cash flow, so your repayment is dependent on how much you make. These loans don’t come with a maturity date since they are dependent on your cash flow. The better your business is doing, the faster you can repay your loan.
The interest rate on your loan depends on the prime rate. Therefore, your interest rate will go up and down, as will your payments.
Business loans used to be paid on a monthly basis. Lenders now offer more flexible payment options. Your loan may require you to make payments monthly, bi-monthly, weekly, or even daily (excluding weekends and bank holidays).
To cut down on expenses, make sure you are making payments as efficiently as possible. If you are mailing in checks, you may be incurring processing fees. Set up an auto-payment from your bank account to ensure timely payments are made.
How Long Will it Take to Pay Back Your Loan?
The answer is, it depends on your repayment terms and the length of your loan. If you opt for a short term loan, it will take less time to pay it back than if you take out a long term loan with a fixed payment schedule and never make more than the minimum payment.
If you’re looking to pay your loan off sooner, consider refinancing. Contact us today to learn more about what we can offer you and your business.