In today’s fast-paced business landscape, where quick decisions are often required to drive growth, credit facilities offer a convenient way to handle expenses, make large purchases, and weather unexpected financial storms.
A credit facility can be a useful tool to access funding while going through a cash flow dip or when capital is needed to take advantage of opportunities as they arise.
An ideal alternative to a credit facility is a funding solution like Lula’s Revolving Capital Facility which works similarly to a revolving credit facility, offering a flexible line of funding in case of unexpected expenses or opportunities you can’t afford to miss.
For a small business, easy access to working capital can fuel growth during periods of economic uncertainty. While using a credit facility can be a valuable solution, knowing how to manage a credit facility effectively can equip you to improve and maintain your business’s financial health.
The Importance of Responsible Credit Facility Repayment Management
In a report by the South African Reserve Bank (SARB), year-on-year credit growth extended by financial institutions to the domestic private sector gradually decreased from 9.9% in February 2023 to 3.1% in April 2024. This decline reflects weak business confidence. Banks have also tightened their lending criteria, making it harder for businesses to qualify for credit due to high and rising default rates.
Failure to manage credit facility repayments has a direct impact on a business’s cash flow, credit score and overall financial health.
In certain situations, taking out credit can be a setback to a business’s financial success. With that said, if it is used and managed effectively, it can provide small business owners with funding to grow.
When you as a small business owner prioritise the management of credit facility repayments, your business can benefit in several ways:
- Improve cash flow
- Contribute towards cost savings
- Enhance its credit profile
- Strengthen lender relationships
- Boost investor confidence
By diligently managing credit facility repayments and sticking to a repayment schedule, your business can maintain steady cash flow, avoid costly late fees, and strengthen its credit profile.
This not only prevents unnecessary expenses, but also positions it better to increase its chances of being granted favourable loan terms and interest rates in the future.
Responsible credit management also fosters stronger relationships with lenders and boosts investor confidence, positioning the business favourably for expansion and investment opportunities.
As much as a credit facility can help increase profits, it can also become a burden and harm your business’s long-term growth if not managed responsibly.
Knowing the importance of responsible credit facility management, you may be wondering how to get it right. Here are 4 tips to help you:
1. Make payments on time
An important aspect of responsible borrowing is making your payments on time. Late payments can result in added fees and penalties, as well as negatively impact your credit score. Setting up automated repayments or reminder alerts can help you stay on top of your payments and avoid late fees.
2. Track your credit use
Keep track of your business’s credit use. Do this by regularly reviewing bank statements. This will help you stay in control. It’s best never to max out your credit as it can harm your credit score.
Set limits for how much of the credit facility you can use at a given time to make sure you don’t overextend your finances. A credit usage ratio is the percentage of available credit that you’re using on your credit cards and other lines of credit. It’s based on the balances that appear in your credit report. Pay down existing debt to maintain your credit score.
3. Create a cash flow forecast
You can create a cash flow forecast and budget that includes the anticipated costs and repayments that come with your credit facility. If you want to learn more about cash flow here’s a comprehensive cash flow kit that explains everything there is to know about it.
Lulaflow is a powerful cash flow management tool in Lula’s Free and Unlimited Business Bank Accounts. You can access the Lulaflow dashboard by opening a Lula Free or Unlimited Business Bank Account and linking your other business bank accounts or accounting software to securely sync your transaction data. Lulaflow can help you manage your finances more effectively and avoid sudden surprises, giving you tailored insights on your business income, expenditure, and cash flow forecasts.
4. Communicate with your lender
If you find yourself facing financial difficulty or are struggling to make repayments, it’s best to be proactive and communicate with your lender. They may be flexible and offer options such as renegotiating or restructuring the facility to better suit your current financial situation.
It’s important to review terms and conditions regularly to understand how interest rates or any changes to terms might affect your repayments.
It may be worthwhile negotiating better terms or seeking alternative funding options like those offered by Lula that are more flexible and offer fixed costs that don’t change. Lula offers flexible funding options like a Revolving Capital Facility and Capital Advance, with fixed fees.
Boost your Business’s Financial Health
In addition to effective financial planning and the implementation of cost-saving strategies, implementing these four simple tips can reduce the risk of missed or late repayments and boost your business’s financial health.
Before you decide to apply for a credit facility or a bank loan with stringent application requirements and lengthy approval times, explore alternative funding options. Lula’s Revolving Capital Facility and Capital Advance give you quick, easy access to up to R5 million within as little as 24 hours.
Lula’s all-digital application process and innovative assessment technology eliminate the need for paperwork, admin and in-person bank visits, making it that much easier to access funding when your business needs it.
