If cash flow is tight, your small business loan payment can feel like it weighs a little heavier than usual. Perhaps your sales have been slow, or a seasonal slump is in full swing, or maybe something unexpected came out of nowhere. Well, there is good news: you don’t have to refinance to get relief from a high business loan payment. There are ways to lower your small business loan payment, both temporarily and permanently, without negatively impacting your credit score.
Why Refinancing Isn’t Always the Best Option
Refinancing can lower your small business loan payments, but it also has fees and can require multiple credit checks. It may also extend the duration of the loan. If you are only facing a short-term financial problem, you could end up paying more for the refinance than you will gain in the lower payment. Instead, you should reach out to your current lender and explore options for assistance, which are generally faster and less costly than refinancing.
Option 1: Re-Amortization of Your Loan
Re-amortization, or loan modification, is probably one of the most near-perfect ways to lower your small business loan payment without carrying out a refinance.
What Is Re-Amortization?
Re-amortization is when your lender changes your loan payments by taking into account:
- The unpaid loan balance
- The borrower’s increased loan term
- Your present financial circumstances
This way, your debt is divided into more instalments, thus the small business loan payment becomes smaller each month.
How It Helps
- Offers immediate financial relief
- Maintains the original interest rate
- Does not require a new loan agreement
Maybe you’ll pay a bit more interest over the entire period, but the smaller monthly small business loan payment can be a great relief for your business if the situation gets tough.
Option 2: Request a Temporary Payment Adjustment
If you’re only experiencing a short-term slowdown, such as 3 to 6 months, you may want to talk to your lender about:
- Interest-only payments
- Payment deferral
- Reduced monthly payments
Many banks, as well as SBA-backed lenders, will work with you on temporarily adjusting your SBA loan payments. The key is to communicate.
How to Negotiate with Your Lender
You may think of negotiation as confrontation, but it’s not. Negotiation is preparation. Here’s how to negotiate with your lender in a professional manner:
1. Contact Your Lender Early
Never wait until you’re about to miss a small business loan payment. Once you’re late on a payment, it can affect your credit history. Contact them early, even if you’re anticipating difficulties.
2. Have The Evidence
Before you can make a request for lower monthly amounts on a business loan repayment, you will need the following:
- Recent bank statements
- Cash flow forecasts/projections
- Profit and loss statements (P&L)
- Brief explanation of temporary financial hardship
To show that your problem is a temporary one and that re-amortizing your small business loan payment will help stabilize the company and its cash flow.
3. Present The Plan
Do not simply tell them that you can’t pay your loan. You have to be specific with what you are asking for. For example, “I would like to request that my term of the loan be extended for an additional 12 months. That would give me time to recover lost revenue and help me pay my small business loan.” The more specific your request is, the more confident they are that you can pay your loan.
4. Ask About Hardship Programs
Banks have their own internal hardship programs, especially for SBA loan payment terms. They can offer:
- Reconditioning of the loan
- Paused payments
- Extended loan terms
Since you are not defaulting on your loan, but rather asking to change it, in general, your credit score is not at risk.
Will This Affect Your Credit Score?
Not necessarily, if you manage it well. If you:
- Reach out to the lender before you skip payments
- Get a formal modification agreement
- Keep making agreed payments
Your small business loan payment adjustment shouldn’t show up as delinquent. Ignoring the issue and missing payments without reaching out is where the real damage starts.
When This Strategy Works Best
Reducing your small business loan payment without refinancing can work best if:
- The drop in revenue is only temporary
- You have a good payment history
- The lender wants to maintain a good relationship with you
It may not work, however, if your business is fundamentally unprofitable. In such cases, more significant changes may be required.
Pro Tip: Maintain Goodwill with Your Bank
Banks are always cautious to avoid defaults on any loans. Ensuring that your small business loan payment is manageable will work in your favor as well as the banks. The situation should always be dealt with in a professional manner. Negotiating is an important part of business finance.
Conclusion
If you are in a tight spot and are struggling with cash flows, then refinancing your small business loan is not the only option. With the option of re-amortization and negotiations with your lender, you can reduce your small business loan repayments much quicker and more efficiently. If you communicate early and provide necessary documentation and propose a structured plan to adjust your business loan repayments or SBA loan repayments, then you will not only reduce some of the burden but also will not harm your credit score as well.
