The Green Sheet Online Edition

November 23, 2015 • Issue 15:11:02

Electronic payments and small business loans

By Ty Kiisel
OnDeck Capital Inc.

Paying bills electronically is fast becoming the norm for many people. According to a report published in the Credit Union Times, digital bill payments grew from 37 percent of all bills paid to 49 percent in 2013. Earlier in 2015, market research company Research and Markets predicted online payments would exceed $3.2 trillion in the next five years.

This trend isn't just impacting mortgage payments, car payments or online purchases either. Many small business lenders are using automatic electronic payments to make it easier for borrowers to stay on top of their regular periodic payments ‒ regardless of whether those payments are made daily, weekly or monthly. A win-win for lenders, borrowers In addition to being seen as a potential convenience for borrowers, it helps small business lenders approve loans to business owners that might not otherwise get approval at the local bank.

Of course, an automatic payment will require careful consideration of whether your business, or one of your merchant customers, can support such payments from a cash-flow perspective. It will also require some organization to ensure funds are in the account when the debit hits to avoid bank overdraft fees or late fees from the lender.

Four tips to stay on track

Here are a few suggestions that will help you and your merchant customers manage an automatic payment schedule:

1. Schedule when payments are due: Automatic bill pay is a relatively new way to make small business loan payments ‒ particularly if it includes a daily or weekly debit. More frequent periodic payments, automatically debited from a business bank account, might even feel uncomfortable at first. There are apps designed to help you monitor your bank account and even notify you of an upcoming automatic payment, should you decide to use an app to keep track. Or it could be as easy as noting the days that payments will be debited on a calendar. One of the keys to accommodating automatic payments is to plan for them.
2. Build a buffer: Nobody, including your lender, wants to see an empty bank account. It makes sense to build a cushion to make sure cash is available when payments are due. Just how much cushion you might need is up to you and your particular loan payment, and it will depend upon the specifics of your business's cash flow.
3. Regularly balance your statement: Automatic payments make it convenient and easy to stay on top of loan payments, but you'll likely want to regularly balance your statement to ensure you don't get surprised because you forgot to account for a payment and have less in your account than you thought.
4. Be proactive: While it shouldn't happen often, there may be times when an automatic payment is due and you might know there isn't going to be enough in the account. Let your lender know as quickly as possible. Your loan provider will be more likely to accommodate your situation if the lines of communication are open. Most lenders understand that occasional blips in cash flow happen, and many are willing to work with borrowers who are proactive.

Automatic payments not only help you, or your merchants, make timely loan payments and give you greater access to borrowed capital, those timely payments may even help you build a stronger business credit profile. A little bit of organization and forethought is what it takes to make sure you're prepared for those automatic periodic payments.

Ty Kiisel is a contributing author focusing on small business financing at OnDeck Capital Inc., a technology company solving the biggest challenge small businesses face: access to capital. With over 25 years of experience in the trenches of small business, Ty shares personal experiences and valuable tips to help small business owners become more financially responsible. Contact him at tkiisel@ondeck.com. You can also reach OnDeck at www.ondeck.com, on Facebook at www.facebook.com/ondeckcapital and through the Twitter moniker @OnDeckCapital.

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