You have successfully gathered your documents and information, completed your application, and been approved for a small business loan. Good work!
So what comes next?
A business loan opens up the opportunity to grow and grow your business. At the same time, since your financial situation has changed, it is important to take the time to review your plans, projections and internal processes to stay on track. You have also forged an important business relationship with your lender. Honoring your commitments under the loan agreement is essential to building up a credit history for your business. It’s a time of “leveling up” for your business – the opportunity increases, and so does your obligation as a business owner.
To successfully navigate this exciting new time, follow some proven recommendations for what to do (or avoid) once you’ve received a small business loan.
Make your payments on time
Making all loan payments on time and according to the terms of your loan agreement is the most important thing. Falling behind on loan repayments can negatively impact your credit rating and your ability to access loans in the future. Create an automatic process so payments can’t slip through the cracks. Most lenders make it easy to set up automatic monthly payments for your loans, so you don’t have to write checks or fill out payment slips. This not only takes something off your and your employees’ to-do list each month, but also gives you peace of mind that you never have to worry about whether your loan is in good standing.
Do not mix professional and personal funds
One of the main benefits of starting a business is that it insulates you as an individual from any negative financial impact of the business and vice versa. One of the most fundamental ways to achieve this is to never mix professional and personal funds. When you receive your loan, immediately transfer it to a designated bank account for your business. If you don’t have a business bank account, you can easily create one with Chase for Business. A separate bank account is the best way to keep business money and personal money from mixing.
Carefully manage your expenses
You may have taken a more informal approach to tracking and approving purchases in the past. Or maybe your small business loan gives you the first opportunity to make major purchases. Either way, now is the perfect time to establish clear internal controls and spending procedures. For example, you can create guidelines for all employees or business partners authorized to make purchases for the company. These rules may restrict the type of supplies employees can purchase themselves or cap the dollar amount of any purchases by employees.
Launching or expanding an employee credit card program is one way to help you track and control how your employees spend company money. You can also talk to your accountant about common internal controls that companies like yours frequently implement.
Don’t leave your lender in the dark
Even with the most careful planning, business (and life) can bring surprises. If things don’t go as planned for your business, don’t wait to discuss your financial situation with your lender. They can often help you find solutions that don’t cause you to miss loan payments. Especially if you’re borrowing from a full-service bank, your lender can work with you. It is in no one’s interest for your loan to be in default. Even if you find yourself late or behind on your payments, having this conversation sooner rather than later will give you more options to address it.
Review your business plan
Your business plan is one of the most important tools for managing your business. The funding injection of your new business loan gives you a perfect opportunity to go back to this foundational document and make updates and changes. Your financial projections will need to take into account the new loan. For starters, the loan will give you more operating funds, while the payments will increase your monthly expenses.
You can also update the plan to reflect how the loan changes your business’ financial situation. For example, if you can buy crafting equipment with the loan, the increased capacity may change the amount of profit you can make per unit. Review your business plan soon after receiving the loan funds and make any necessary adjustments so you have an accurate business plan for the future.
Don’t lose sight of your balance sheet
The balance sheet is another key business tool that you will want to monitor closely once you receive your business loan. It lists all of your current assets and liabilities and is one of the best ways to see your company’s overall financial situation at a glance. With a new injection of capital, it can be tempting not to watch your balance sheet as closely as before. After all, you have the money you need to pay your bills. But, in fact, now is the time to pay close attention to your balance sheet to plan for your future.
As soon as the loan funds are disbursed, you should update your balance sheet to reflect the new capital. Next, add your loan payments to your total monthly expenses. Your updated balance sheet will give you a more realistic idea of how much you have to spend or invest and how much you should keep in reserve.
Spend the money for growth
Once you’ve updated all of your essential business documents and done some planning, you’re ready to spend money on your business. Perhaps you need to finance new equipment or finance a real estate purchase. Or maybe you need money to hire more workers or hire professional consultants to help you plan your business strategy. How you use your money will depend on your industry and the stage of growth of your business.
However you spend your money, it’s important to only use it for the things that will help your business grow. As you continue to repay your loan, your lender and other investors will want to see that you are growing sustainably and making sound business decisions. Showing that you can spend money wisely will help you make your case when it comes time to apply for another loan, line of credit or other financing.