CALCULATING LOAN REPAYMENT INSTALLMENTS

Loan

Use loans to finance fixed asset needs. If you need to finance cash flow gaps (due to mismatches between collections and payments, merchandise purchases, etc.), use credit lines or trade discounts.

Adjust the repayment period to the useful life of the financed asset, without exceeding it:

• The cash flow generated by the new investment will help you pay off the loan more easily.
• If you intend to pay it off too quickly, the loan installments will be very high, and you will need to allocate resources from other sources to pay it off.
• If you intend to amortize it over a very long term (to reduce the amount of the installments), the asset may become obsolete and still have some amount pending amortization, with the difficulty that this may pose in financing the renewal of the asset.

Request a grace period

It is possible to request a grace period, that is, a period during which only interest is paid, without repayment of the principal.

Justify the grace period by providing your cash flow projections. Generally, it’s advisable to request this grace period for investments necessary to start the business, or for new projects where lower-than-normal income is expected during the first few months. Keep in mind that banks will not look favorably upon this grace period if the loan is intended to replace machinery, since in that case the business is already operational.