Avoid defaulting on a business loan using simple measures. Understand the dynamics of the loan that you’ve taken and plan how you intend to repay it. Business loan default consequences can be grave so try and make your payments on time. Here’s a guide to help you understand what delinquency is and how to avoid it when it comes to business loans.
When taking online small business loans, be aware that all loans require repayment. Before you apply for a loan, be smart and proactive. Calculate the loan-repayment amount and fit it in your budget. Downsize your expenses and plan all your expenses meticulously so that you will avoid a default on a business loan.
what is delinquency or defaulting on a business loan?
When there is a failure to meet the financial obligations by the due date, the loan is termed as delinquent. If these dues are missed for several months, it is termed as default. Business loan default consequences can be harmful to you and your business, not only causing legal problems but also having a negative impact on your credit history. Due to a default, there may be an increase in interest rates or you may even encounter problems in obtaining a credit card in the future.
Here are a few pointers on how to avoid delinquency and defaulting on a business loan:
- Understand your loan agreement: Read the documents carefully before you take any loan as it is a legally binding document. It is imperative to understand how you are required to repay the loan, what the amount is and what the charges are for defaulting.
- Manage your loan: Borrow only as much as you need and can realistically expect to repay. Then plan and maintain a budget that is within your monthly income, ensuring loan repayments on time.
- Track your loan: File all the correspondence regarding your loan. Make copies of cancelled cheques and any forms you sign. Make a chart; write the principal amount and the number of repayments you need to make with dates and mark-off as you make the payments. This makes it easier for you to understand where you stand. If you are more digitally inclined, type up a calendar for yourself and put reminders on your smartphone or laptop to make sure that forgetting about your loan is not the cause of a default.
- Stay connected with your loan provider: Maintain a cordial relationship with your loan provider or lender, intimating them of the payments as you keep making them. Notify them of any change in your contact details like address or phone number. Seek help as early as possible if you fear any difficulty in repayment of a loan. In case of any unforeseen circumstances, which may result in unbudgeted expenditure, ask for revised repayment terms.
- Avoid frivolous expenses: Sudden or unexpected expenditure creates havoc in your monthly budget, so refrain from unnecessary expenses. Buy only what’s essential and stick to your budget.
Repercussions of defaulting on a business loan:
Defaulting on a business loan has far-reaching consequences. Delinquency may cause your business credit score to dip, resulting in a rise in interest rates for not only for this loan but for all future loans as well. If the delay is considerable, the lender can take legal recourse, which can include penalties, interest, fees, etc. Seizing and foreclosure of property are the extreme steps taken, which may result in heavy losses, so always repay your loans on time with better planning and management of your income.
Bajaj Finserv, one of the leading financiers offers one of the best interests for business loans. It also offers an EMI calculator to help you understand what the repayment would look like for you to help you decide what works best for you and your business. Online small business loans from Bajaj Finserv come with extra benefits like online account access and pre-approved offers and go up to Rs 30 lakhs.