If you own a business, you know thaHow Not to Default On Your Business Loant at some point in time, taking a Business Loan for a new business is essential. After carrying out thorough research, the person can decide to Apply for a Business Loan Online or directly approach the lender. However, it is necessary that the borrower avoids defaulting on the Business Loan.
If you default on your Business Loan, there will be a constant fear every single time the collectors start reminding you to make timely payments. MyMoneyMantra will help you in understanding the main reasons for causing the default of a Business Loan as well as ways to prevent it happening.
Miscalculations are the most common mistake you could make. You can also face a decline in sales or other sudden arising business problems struggling to repay back the debts. When this happens, you are also putting the safety of your business assets at risk.
What do banks do?
Banks and Non-banking Financial Companies (NBFCs) call it ‘delinquency’ which means that a borrower has failed to make the loan payment at the proper time. Banks usually charge a late fee to remove the delinquency, but only if the payment is made late on an occasional basis. An often delay in the payments would see banks charge more and more fees and add him as a defaulter.
It will be up to the lender when he calls you a defaulter. With a delay in the first payment itself, you could be called a defaulter. But, it usually happens only if you have delayed repayment for two weeks or more.
Measures to avoid defaulting on your Business Loan:
- Firstly, speak to your lender:
To avoid turning into a loan defaulter, your best move is to first call up the lender and let him know about your present situation. Inform the lender that you aren’t in the best position to repay the loan instalments for the coming months. Ensure the lender that you will pay back and clear off the outstanding debts within a specific period. By understanding the situation, the lender may provide you some time before calling you a defaulter.
Short-term debt is the most common problem that your business can face, and you will have to find a solution soon. For clearing out such smaller accounts, it is advisable for you to take one huge loan. Refinancing is a great option, but it comes with a lot of positives and negatives. Firstly, understand and check all the details before you move forward with refinancing your Business Loan. Make sure that your personal debts are not combined with the business debts.
If you are thinking of expanding your business too early, taking a loan without maintaining timely payments can put you on the lender’s defaulter list. To avoid this, you will have to start keeping back more and reduce all additional costs and expenses. Your business will begin showing slow but steady growth.
Your business will see a significant amount of money coming in and going out making it all the vital for you to prioritize all business transactions. If you have any payments to be made by the end of the month, they should all be cleared off soon if you are expecting some additional cash to flow in. After prioritizing all your expenses, repay the most crucial one first.
If you do not have the money to make your monthly payment on time, one temporary way is to sell off your business assets. These assets can include the ones that can either be liquidated or converted into cash to pay off the monthly payments. You can apply this method until you are once again able to repay the monthly bills on time.
- Getting legal assistance:
Your last possible way to get a practical solution is to go for the legal advice available to avoid defaulting on your business loan. Most lawyers who know this subject will give you the proper guidance by understanding the problem and providing you with its cause.
Instead of sitting back and doing nothing, you will find a large number of alternatives available to prevent defaulting on your Business Loan or else the future consequences can be severe. Even though the lender would care for your business, at the same time he wants to get his money back. You have to be responsible and ensure that you have repaid the payment on time, which will also keep your business firm and well established.
If you are recognized as a loan defaulter, it will be challenging for you to apply or get new Business Loans which can ultimately result in bankruptcy. Thus, use the above methods to avoid defaulting on your Business Loan and making the best use of the funds that you receive from the loan.
Also Read: How to Get the Lowest Interest Rate Business Loan
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