Loan Repayment: What You Need to Know

Once you’ve secured a loan or line of credit from FundLocal, understanding the automatic repayment process is crucial to maintaining your business’s financial health. FundLocal requires automatic payments to ensure that repayments are made on time, helping you avoid late fees and protecting your business’s credit profile. Successful repayment of your loan or line of credit keeps your business in good standing and helps build a positive credit history for future financing opportunities.

This guide covers how automatic loan repayments work, key details you need to know, and best practices to manage repayments effectively.

The repayment plan for your FundLocal loan or line of credit will vary depending on the type of financing you’ve secured. Here’s a breakdown of common repayment structures:

1. Fixed Installment Loans

With fixed installment loans, such as equipment financing or working capital loans, you will make regular payments (usually monthly or weekly) over a set period until the loan is fully repaid. The payment amount is fixed, meaning you’ll pay the same amount each time, which includes both the principal and interest.

• Repayment Structure: Fixed payments over a specified period (e.g., 12, 24, or 36 months).

• Best For: Loans with a defined purpose, such as buying equipment or covering operational costs.

• Benefit: Predictable payments make it easier to budget and plan your cash flow.

2. Revolving Credit Lines

A business line of credit is a revolving credit option where you can borrow funds as needed, up to your credit limit. You only make payments on the amount you’ve withdrawn, and once you repay the borrowed amount, the credit becomes available again.

• Repayment Structure: Automatic payments are made based on the amount drawn, typically including interest-only payments initially, followed by payments toward the principal.

• Best For: Ongoing, short-term needs like managing cash flow or handling unexpected expenses.

• Benefit: Flexibility in how much you borrow and repay, with interest charged only on the funds you use.

Understanding the components of your loan repayment will help you manage the process efficiently. Here are the key elements to consider:

1. Principal

The principal is the original loan amount or the amount you’ve drawn from your line of credit. Over the course of the repayment period, your automatic payments will reduce the principal balance.

• Example: If you borrow $50,000 for equipment financing, the $50,000 is the principal amount you’ll need to repay, in addition to interest.

2. Interest

Interest is the cost of borrowing funds and is typically calculated as a percentage of the loan amount. For fixed loans, the interest rate is usually set for the duration of the loan, while lines of credit may have variable interest rates that can fluctuate over time.

• Fixed Interest: Applies to loans like equipment financing, where the rate is locked in for the loan term.

• Variable Interest: Applies to lines of credit, where interest rates can adjust based on market conditions.

3. Automatic Repayment Schedule

FundLocal requires all loans and lines of credit to be repaid through automatic payments. This ensures that your payments are made on time and eliminates the risk of missing a due date.

• Automatic Deduction: Payments are automatically withdrawn from your business checking account on the scheduled due date.

• Consistency: Payments are made according to the agreed repayment schedule—whether monthly, weekly, or another arrangement—depending on the loan type.

4. Fees

Your loan agreement may include certain fees, such as:

• Origination Fees: Charged at the beginning of the loan to cover processing costs.

• Late Payment Fees: While automatic payments reduce the risk of late payments, it's important to ensure your account has sufficient funds to avoid fees.

Always review your loan agreement to understand any fees that may apply.

FundLocal’s automatic payment system is designed to simplify loan repayment and ensure that you remain in good standing throughout the loan term. Here’s how it works:

1. Setting Up Automatic Payments

When your loan is approved, FundLocal will require you to set up automatic payments using your business’s checking account. This process ensures that all payments are withdrawn on time, directly from your account.

• Bank Account Required: You must provide the account details of a business checking account from which automatic payments will be deducted.

• Scheduled Withdrawals: Payments will be automatically deducted on the scheduled due dates, ensuring you never miss a payment.

2. Sufficient Funds in Your Account

To avoid any disruption in your automatic payments, it’s essential to maintain enough funds in your business checking account to cover the scheduled payments.

• Monitor Your Balance: Ensure your account always has sufficient funds to cover each automatic payment. This prevents overdrafts and ensures timely payments.

• Set Alerts: Many banks offer balance alerts that notify you when your account falls below a certain threshold. Use these tools to stay on top of your account balance.

3. Early Repayment Options

FundLocal does not penalize borrowers for early repayment, so if your cash flow allows, you can pay off your loan ahead of schedule to reduce interest costs.

• Benefit: Early repayment reduces the overall interest charges and gives you more flexibility with future financing.

• How It Works: Simply contact FundLocal’s support team to request a payoff amount, and the remaining balance will be automatically deducted from your account.

Effectively managing your loan repayment helps keep your business financially healthy and ensures continued access to financing. Here are some best practices for managing your automatic payments:

1. Align Payments with Cash Flow

Make sure your loan repayment schedule aligns with your business’s cash flow patterns. If possible, schedule repayments for when your business has more cash on hand to ensure there are always sufficient funds in your account.

• Tip: Use cash flow projections to anticipate periods of low cash reserves and plan accordingly.

2. Monitor Your Loan Balance

Regularly checking your loan balance and repayment progress can help you stay on top of your financial obligations. You can track how much principal you’ve repaid, how much interest you’ve been charged, and how much remains outstanding.

• Tip: Most lenders, including FundLocal, offer an online portal where you can view your loan balance and repayment history.

3. Avoid Missed Payments

While automatic payments greatly reduce the risk of missed payments, it’s essential to monitor your account and ensure there are always enough funds available for each payment.

• Tip: Keep a buffer in your business checking account to avoid overdrafts or missed payments.

4. Communicate with Your Lender

If your business encounters financial difficulties or you anticipate challenges in maintaining sufficient funds for an automatic payment, contact FundLocal as soon as possible. We may be able to offer solutions such as adjusting the repayment schedule or providing temporary relief.

• Tip: Proactively communicate any issues to avoid late fees or disruptions to your loan.

Successfully managing your loan repayment not only helps keep your business financially sound but also improves your credit profile. Here’s how timely repayment impacts your credit:

• Build Business Credit: Regular, on-time payments reflect positively on your business credit report, improving your credit score and making it easier to secure larger loans in the future.

• Access Better Financing Options: As you build a strong repayment history, you’ll likely qualify for better terms on future loans, including lower interest rates and larger credit limits.

By understanding and staying on top of your automatic repayment schedule, you can ensure your loan is repaid smoothly and avoid any financial disruptions. If you have any questions about your repayments or need help managing your loan, FundLocal’s support team is here to assist. We’re dedicated to helping you successfully navigate the loan process and meet your financial goals!