How to manage your business start-up loan


If you’ve been awarded a business loan, you’ve obtained what most business owners - particularly those that are struggling with cash flow - yearn for. The newly acquired funding will no doubt provide the cash injection your company needs to stay in business and to grow. 

However, if that loan isn’t managed properly, instead of being a lifesaver it could end up being a financial noose around your neck. It’s vital that when you get the money that you make plans to properly manage it because if you start treating the money like your own personal bank account you could lose your business entirely.

READ: How to get your business ready for a loan

Here’s what you should do to ensure that the loan helps you in the way that it was meant to:

1. Reinforce your business plan: What are your business’ plans and goals and how does this money tie into all of that? Now that you have the financing will you be using the loan for its intended purpose? Even if a new commitment or expense has emerged since your loan application, it’s vital not to deviate too much from what the money was initially intended for.

“Whatever you get the loan for you should stick to that. Don’t buy a flashy car because if you come back for more from the bank you’re unlikely to get it because that level of trust is broken,” advises Elton Govender, team lead planning for business banking SME sales at Absa. 

2. Put the loan in a separate account: While the loan has been awarded to you it’s vital that you draw on the money only when and as you need it. Even if you are disciplined, keep the funds separately and pay the business from the loan money when the need arises. Putting it in the company account or even your personal account may tempt you into using the money unnecessarily. 

3. Set up a debit order: Remember that you have to pay this money back and if your bank wants you to make monthly repayments it’s important to start them as early as possible so that you pay your loan off quicker. Set up a debit order online – doing so means you have one less thing to worry about.

“Once you’ve got the business loan – don’t spend it all at once. Pay what you have to. Then you have to generate profit and make sure that you can pay the loan back,” says Govender. 

READ: Is your money doing what you want it to do?

4. Keep an eye on your expenditure and income: Paying attention to spreadsheets which look at your expenses and income may be a dull exercise, but you have to make sure you know exactly where every cent is going. If you don’t, you may draw on your loan unnecessarily. 

5. Make sure you spend wisely: Your loan will not last forever. This is why it’s so vital to spend smartly when it comes to using borrowed money. You’ve got to make sure that your spending adds value to the business and isn’t wasted.

“Some just buy stock which ends up just sitting in storage for six months and doesn’t do anything,” says Govender. 

6. Cut expenses and stick to your budget: A business loan can provide you with the liquidity you need to manage your business but don’t let it go to your head. It doesn’t mean that you should carry on spending as you have been. Look at your budget and make sure you engage in a cost-cutting exercise where possible. See where you can make savings and use that to help to pay for other expenses or to pay more into your loan so that you pay it back even faster. 

7. Increase your productivity: If you’re borrowing money it means that what you have been doing up to now has not been enough to fund your business. Now is the time to find new ways of increasing your revenue. If it means expanding on some of your employees’ skills or engaging in new marketing initiatives, then do so. It may mean an increase in costs but if you include this in your business’ budget and keep an eye on your spending it should help you in making more money. 

READ: Howard - the property entrepreneur

Many businesses close down in South Africa and money management (or the lack thereof) is a major reason behind some of these closures. If you are lucky enough to get a business loan from a bank or another reputable institution, you have to tread carefully. 

“A business loan can go quite quickly. Think of it as a treasure; something that you value the most. It can help your business to grow but if you spend it on things that are not generating revenue you will lose it easily,” adds Govender. 

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