It’s crucial never to take on debt you aren’t prepared to repay. However, the ups and downs of business can be unpredictable, and sometimes you find yourself in dire straits. It happens, and there are ways to work out your loan with your lender when it does.
Call Your Lender If You’re Unable to Make a Timely Payment
Your lender would much rather work out a way to get the loan paid than go through delinquency and default. A simple call can help the lender understand your financial situation and open the doors for working out a way to get your payments back on track.
If you don’t take the initiative to reach out to your lender, they will start calling once you’ve missed a payment. Your loan will be considered delinquent at that point, negatively impacting your credit.
Delinquency lasts as long as your loan agreement says it will. During this time, the lender will call you often to try and work something out. It’s imperative you don’t shirk the lender because if you get to the end of the delinquency period and haven’t made an effort to resolve the issue, you will default on the loan.
Defaulting Is Bad for Business
Defaulting will severely impact your business credit score. Depending on how you structured your business, your personal score may also be affected. When your score dips, your interest rates will rise.
If your loan was collateralized, the collateral would be collected and your creditor may try to recover losses through foreclosure. If the loan was unsecured, the creditor could litigate against your company to collect. Once the creditor secures a judgment against your company, they can garnish your bank accounts or place a lien on any real estate or vehicles owned by your business.
If you took out the loan as a sole proprietor, then you and your business are considered the same entity, and you will be personally responsible for the loan payment. If you can’t make the payment, creditors can go after your personal assets to get repaid.
The SBA has a slightly different process for collecting on loans in default. Learn what happens when you default on an SBA loan.
Your inventory and other assets will be sold to the highest bidder when your business declares bankruptcy and your creditors will be paid from the proceeds. In the case of a sole proprietorship, you may be able to file for Chapter 7 personal bankruptcy to erase your liability for business debts.
Find the Kind of Loan You Won't Default On
The easiest way to avoid delinquency and defaulting on your loans is to pick the right loan from the start. Lending marketplaces, like Lendio, specialize in finding the best possible option for your business.
How does it work? You fill out a 15-minute application that goes to our network of more than 75 lenders. They send in their offers, and we help you pick the one with the best repayment terms for your business. It’s that simple.