Can I repay a business loan early?
Usually, and on most of our panel it genuinely saves you money rather than simply ending things sooner. Several lenders publish no charge at all for settling early. A few price the interest in up front, so clearing it early saves less than you would expect.
The question to ask
Not "is there an early repayment fee" but "what do I actually pay if I settle in month six". On a reducing-balance loan you stop paying interest from the day you clear it. On a facility charged as a flat fee per drawdown, some providers waive the remaining instalment fees and some keep them.
The difference on a £50,000 facility can run to thousands, and it is rarely the headline number that decides it.
What we do about it
We confirm the early settlement position for your specific lender before anything is placed, and tell you in pounds rather than in clauses.
No automatic right for a company
Consumers have a legal right to settle a regulated loan early and receive a rebate of interest. A limited company borrowing for its business usually does not, because that lending is not regulated consumer credit. The position is whatever the agreement says, which is why the early settlement clause is worth reading before you sign rather than when you want to leave.
Paying down part of it
Some lenders accept a part payment and either shorten the term or lower the monthly amount. Others only accept settlement in full. If you expect a lump sum, a contract payment or a seasonal peak, ask which applies before you choose the lender.
Refinancing to clear it
Sometimes repaying early means replacing one loan with a cheaper one. That only works if the saving beats the cost of leaving, and the new lender will want to see the old loan being cleared rather than added to.
Keep enough back
Repaying early only helps if it leaves the business comfortable. Clearing a loan with cash you need again in three months means borrowing again, probably at a worse price and with a fresh search on the file. Hold enough in reserve for the next few months before settling anything.
Common questions
How do I get a settlement figure?
Ask the lender in writing for a settlement figure valid to a specific date. It should show the capital outstanding, interest to that date and any charge for settling. Figures usually expire within days because interest keeps running, so ask when you are ready to pay. Check the figure against your own sums before you send the money.
Does paying off a loan early improve my credit file?
It shows the facility closed as settled, which reads well. It rarely moves things as much as people hope, because a loan paid on time every month was already a positive. The bigger gain is the payment you no longer make, which improves affordability for the next lender.
Does a personal guarantee end when the loan is repaid?
The guarantee covers the debt, so once the debt is cleared it has nothing left to secure. Some guarantees are written to cover everything owed to that lender, not just one loan, so ask the lender to confirm in writing that yours has been released.
Is it worth repaying a loan that is nearly finished?
Usually not by much. On a reducing-balance loan most of the interest falls in the early months, so the last few payments are mostly capital and clearing them early saves little. The saving is largest early in the term, which is when a settlement figure is worth asking for.
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