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ISCOVER
The top of the year is a great time to get your clients reflecting on their businesses.
Questions like: What’s working well? What isn’t? What are your goals for the next 12 months? Where can you make improvements?
With the latest Banjo Barometer suggesting there won't be many free kicks in 2025, it’s timely that SMEs look for other opportunities to get ahead – such as by optimising how they manage their business loans.
This includes shortening their loan repayment schedule, and aligning their loan repayments with their business income.
These related strategies can make a powerful left-right combo for SMEs to improve their cashflow – and show your value as a broker.
Let’s take a closer look at these two approaches.
Shortening loan repayment cycles
While many business loans are set-up with monthly repayments, there can be advantages in a shorter loan repayment cycle, such as weekly.
Reduced interest costs
Making more smaller but more frequent repayments should help SMEs bring down their loan faster – in turn, reducing the amount of interest they’re charged. Win!
Cashflow flexibility
Many businesses experience seasonal fluctuations in their sales. During the ‘low’ times, that large monthly repayment can land particularly hard. By going weekly, SMEs can find it easier to manage their financial obligations with smaller regular payments.
Improved financial discipline
Like the above, weekly repayments can help bring SMEs closer to how their business is performing – to better see the flow of money in and out. By engaging more frequently with their cashflow, business owners can sharpen their financial discipline, and potentially discover new opportunities and ‘efficiencies’ they might have otherwise missed.
Adaptability amid change
Business owners know that there’s always an unexpected event around the corner.
Property damage, machinery breakdown, recruitment costs, increase in overheads. It could be anything. Having a smaller, weekly repayment schedule could help them adjust quickly without the stress of a larger repayment falling imminent. Weekly repayments may also allow for adjustment of repayment amounts, or terms, until that unexpected event has passed.
Aligning loan repayments
When it comes to cashflow, just a matter of days can make a difference to an SME’s financial position.
Talk to your clients about aligning their loan repayments with when they get paid by customers, or when you have greater cash balances in the bank. It’s a simple tactic that can help improve their cashflow position.
Getting these regular repayments 'out-of-the-way' can also help give them a clearer picture of what funds will be routinely available to use elsewhere, such as investing back into their operations, or building up a cash reserve, or paying down other debts.
So, good for the business – but also for the lender. A history of timely and reliable repayments can help the next time they need to extend credit levels or apply for finance.
This is all about the SME being in control of their cashflow. And it’s something that can be considered regardless of how short or long their operating cashflow cycle is.
Short cashflow cycle
Let’s consider a business in hospitality – an industry where cash typically hits the account faster than most. Here we have a cafe, taking cash receipts daily.
Rather than hold money over until a monthly repayment is due, they could try weekly repayments.
This will better align with the cafe's daily take, while smoothing out the daily fluctuations to help with more stable cashflow. Smaller but more regular payments can make it easier to see what working capital is available each week, while potentially avoiding the stress of shortfall that may come with a single larger payment.
Long cashflow cycle
While many SMEs, like those in construction or consulting or manufacturing, have longer operating cashflow cycles, they can still look to better align income with loan repayments.
Diligent invoicing is essential – both for when payments are due, but also through regular communication and reminders to make sure the money arrives when it’s needed. SMEs can negotiate payments from customers in installments to get cash arriving on a more regular basis, making it easier to meet their own repayment obligations.
Whether an SME is applying for new finance or has an existing loan in place, now’s a great time to think about the best repayment approach for their business.
Not sure where to start? Speak with a Banjo Business Loans specialist.
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