One may default a business loan for a number of reasons. In case of some individuals it is merely carless miscalculation, for many others a default may be the result of bad sales, sudden financial emergency or other related factors.
A business loan default should be avoided as much as possible, because it negatively effects one’s credit score and history. Moreover, a default also adds more debt pressure and puts one’s assets at great risk.
Some amount of grace is given by banks to a borrower, generally about 2 weeks, before he is tagged a defaulter, but this is absolutely on the lender’s discretion. Here are a few helpful tips that one should keep in mind in order to avoid defaulting-
In case of delay, inform the lender
If you have taken a business loan and are going through a difficult time, it is best to contact the lender and inform him why there may be a delay in payment of the EMI. One should inform the lender that he needs some time to get things together and that repayment will be done soon.
A common problem that many businesses face is the pressure of clearing small loans that have been taken for a short period of time. In this case, one should weigh their options and consider refinancing. Debt consolidation comes handy during this time. But the present situation should be carefully evaluated before taking another huge loan to pay current short loans.
Prioritize payment of debts
In case one has a number of short term debts, it is best to prioritize their payment. Keep in mind the payments that need to be made at the end of the month and ensure that they are promptly cleared. Do not delay small payments as they will keep piling up.
Ensure that the credit card that has a high rate of interest is cleared first. In this case one pays less interest on the whole.
Take legal help
Seek the advice of a lawyer in order to find a solution to any such problem.
Try cutting costs
In case the business is new, ensure that some cost cuts are practiced. A stringent budget should be organised and re-evaluation of the expenses should be undertaken from time to time. This will allow one to plan his debt repayment more efficiently and prevent any defaults of business loan.
In order to successfully pay back a business loan, one should carefully consider if he really needs the money and has the capacity to repay, at the time of loan application.