A steady stream of finance is important to conduct the day-to-day operations of business. You need money for everything- from paying salary to employees, purchasing business equipment etc. Without adequate funding, it can be difficult for you to run the business smoothly.
Being a business owner, you will know how hard it is to build a business from the ground up. From procuring inventory to handling payments, it can be difficult to manage. You have to face a lot of challenges during your journey. The main challenge for any small business owner is the lack of adequate working capital. This is where a loan comes in handy.
These loans are designed specifically to help business owners establish, grow, and expand their business. You can take a loan to meet your different business-related fund requirements and repay this loan amount in EMIs. Sometimes, you might be unable to pay these EMIs for a variety of reasons such as order cancellation, medical emergencies, delayed pay, etc.
This article covers the consequences of missing the business loan payment and what you can do in case of loan defaults.
Consequences Of Missing Loan Payment
Whenever you apply for a loan, you wish to pay it back on time but things may not go as you have planned. Events such as payment delay, medical emergencies or downswing in business can lead to a financial crisis. The consequences of such a situation are:
It is a reminder that there is a delay in your business loan repayments. This occurs in case you miss the payment of one or two EMIs of your loan. In case of a loan delinquency, the lender will send you a reminder about the missed monthly payments.
If you miss multiple EMI payments even after you receive a loan delinquency reminder, it is called a loan default. If you default on a business loan, the lender might serve a notice asking you the reason for the default. Legal action might also be taken against you by the lender for failure of repayment of loan on time. Usually, the lender provides a grace period to pay off the pending EMIs before resorting to legal actions. The policies regarding loan default differ with different lenders. Make sure to read the terms and conditions of your lender before applying for the loan. It will help you get a better understanding of what will happen in case of a default.
What Can Do You To Avoid Loan Default
Now that you know about the consequences of a loan default, let us try to understand what you as a small business owner can do to avoid being in such a predicament:
Keeping a note of the due dates
Make sure to keep a note of the due dates of the EMIs and make sure that you repay them on time. You can also opt for the facility of auto-debit that pays your monthly instalments automatically from your bank account.
Choose The Loan Tenure With Care
Your EMI is heavily influenced by the loan tenure. A lower EMI will be generated by a longer tenure, and vice versa. As a result, you should be careful while choosing the loan term. Make sure the monthly payments are still within your means so that you can pay them promptly.
Borrow Only What Is Required
A business loan should only be applied if it is absolutely necessary. If you can get by without taking out a loan, consider doing so. Make sure to carefully select the loan amount as well. Consider all of your needs, and select a loan amount that is just right—not too high, nor too low.
Comparison between lenders
Lenders have different fees and interest rates for loans. Before applying for the loan product with the lowest interest rates, it is crucial to examine several lenders and their loan options.
Check Your Monthly Instalments In Advance
Just like you check for business loan eligibility you must make sure that you know the monthly instalment in advance. Make sure that you will be able to pay the EMIs without any issues before you even get a loan. You can make use of the online business loan EMI calculator to get a rough idea about the EMI amount.
What To Do In Case Of Loan Default
In case of an unsecured loan, repaying all the instalments on time is very important as there is no collateral that the lender can use to recuperate the money. There are a few things that you can do in case of a loan default. Some of them are as follows:
Inform The Lender
In case you miss a loan payment, reach out to the lender and give them an idea about the situation. Work out a solution with them. Lenders might extend your due date or even pause payments till your financial situation is better, depending on your credit history.
The Right Lender Will Help You
Remember that the lender will try to help you as much as possible so they might even be willing to settle, even if that means 10%-20% concession on the loan amount. While it will appear on your credit report, it will not be counted as a full default. However, there are conditions that need to be met for the above situation.
Getting a business loan can help you expand and establish their business greatly. However, it is important to repay this loan in time. Failing to do so can harm the business and your financial health.
The best course of action to avoid the consequences of defaulting a business loan is to, of course not default on the loan in the first place. In case such a situation arises, it is better to be honest and upfront about the situation to the lender as soon as possible.
Courtesy - Deccan Herald
Link - https://www.deccanherald.com/brandspot/pr-spot/unable-to-make-the-interest-payments-on-your-business-loan-these-are-some-things-you-should-know-1194577.html