There could be many reasons why one defaults a business loan. While sometimes it could be just miscalculation, in most of the other cases it will be due to declining sales, sudden hardship or many other similar factors which will lead to have a struggle to repay debts. Defaulting loan is a very daunting feeling; it will lead to quite a lot of uneasiness when these debt collectors walk up to the door step to remind and to ensure we are making payments on a timely manner without defaulting. The only fortunate things about business loan as compared to other loans is lender will start using your collateral assets instead of creating scenes at your door step. But in this case, the safety of your assets is at risk.
Quite a lot of opportunities are available if you are having trouble to repay the loan. And avoid these situations is advisable than finding resolution for defaulted payments. Delinquency is the term used by banks and NBFCs when the borrowers make late payment on the outstanding loan amount. In most of the cases banks will charge a fee on the late payment and will let go off the delinquency. This is only in the scenario when late payments happen once in a while, but if you tend to keep delaying the payments often, then banks will start charging you more and more and will also add you to the defaulter bucket.
Though usually in most cases, most banks will categorize a borrower as defaulter only when there is delay if 2 weeks to make the payment. However, it is totally up to the discretion of the lender to decide when to term the borrower as a defaulter. While some banks consider you as defaulter right at the very first payment delay, other might give you couple of chances. If you tend to have too many loan slips, then the intensity of lender approaching you will go up. This is where the real issue lies. Again banks have different way of approaching these delayed payments. Some will directly tag you as the defaulter, while others will appoint third party to collection money from the defaulters.
What You can Do to Avoid Defaulting on Your Business Loan?
We have covered some of the most depressing aspects of loan defaults, but it’s now time to check how to avoid this situation on your outstanding loan:
- First of all, Talk to Your Lender:
The first best move is always to call up the lender directly and letting them know your present situation. If you are in a state to not pay the loan amount for couple of months, then give them the surety that you are looking to clear of the debts within a specific period of time. This will help in getting some time from them before they term you as defaulter.
One of the common problems with every business is short term debt. In such situations, it is advisable to have a macro view of the problem and try to clear all the petty ones with one single huge loan. Something like Debt consolidation is a great option. This has lot of pros and cons thus check the details before taking this approach for your business loan. Also while doing debt consolidation, make sure your personal debts are not clubbed with business debts.
- Prioritize Your Debts:
It’s true that lot of money will go in and out of business but prioritizing them is very crucial. If you have some payments to be made by end of month and early this month, it is advisable to clear the early outstanding if you are expected some additional money to flow into the business. If the case is otherwise, prioritize which expense is very crucial and clear the same. However, have an open conversation with those lenders to whom you owe.
- Seek Legal Assistance:
In case if you are unable to find any solution for your defaulting loan, it is advisable to reach out for legal assistance. A lawyer will be able to give proper guidance understanding the problem and the root cause.
- Cut Down the Costs:
If you are trying to expand your business too early, then that could be a great reason why there are many defaults on your debts. Get back to leading the business in a conservative and reduce the cost and expenses on the existing requirements.
Make you of these tips to avoid and also to handle defaulting of business loan.