Even the best business model may fail which may lead to the loss in the business and leaving you in a great debt. The excessive debt will make you a defaulter and this situation mostly arises when you fail to repay the business loan. If you become a defaulter, then your individual credit score and your small business credit score will have a severe impact and due to the same you will fail to get the further business loan. There are other impacts also and the same are listed below.
Impact on business loan after being a defaulter
Seize of an assets
In a secured loan, the banks always seek for collateral against the loan and if the borrower fails to repay the loan amount, then the bank has a sole right to seize the assets. So, this will be the first step the bank will take if you became a defaulter.
But in case of unsecured loan, the process to take the money from the borrower becomes more difficult for the lender because there is no collateral. However, if you have mortgage your house or a car against the business loan, then it will be repossessed by the lender. On the off chance, if the personal guarantor helped you to avail the business loan and you failed to repay the same amount, then the lender will move to the personal guarantor to get its money back.
A severe impact on your credit score
A good Credit Score enables you to access the business loan and the same depends upon the repayment capacity, debt history, business revenue statement and significantly more. If you fail to repay the debt amount on time to the lender then it will damage your credit score. However, if your business has legal entity, then your credit score is safe but the loss in the business will be higher.
On the off chance, if you think that you will suffer a loss in the business and chances are high to come in the defaulter list, then you must contact your lender and the same will hold your further loan and will wait for the business to come in the track. This process will secure your credit score.
Imposition of Penalty
The banks usually impose the penalty for the late payment and this is applicable only for the unsecured loan because the lender is left with this choice only. The penalty is negotiable and you can do it but after that you will have to pay that amount.
Reminders given by the bank
The banks usually allow one or two payment failure but after that the bank will send the notice or will remind you for the repayment. Even if you fail to respond the notice, then the bank may take the legal action which will create a severe impact on your business.
What if you become bankrupt and failed to clear the debt of the bank?
However, if you came in the defaulter list and your financial health is very poor, then there are few things which you can do to save yourself. Actually the lender always seeks for the way to get its money back from you against the business loan and they don’t want to see you as a defaulter, but the lender can’t see its money going in the drain. So, it will not go for the legal proceeding because the process is not simple and easy. So, most of the lenders offer provide you additional repayment tenure or will schedule your repayment in more effective manner.
Respond to your lender
You may have already been informed by the lender about the debt status and in such cases, most of the borrowers avoid taking the calls and this creates a negative impact on the lender.
So, it is advised not to ignore the calls of the lenders and if possible meet with them and ask for some way which can settle the debt. After meeting, you can negotiate for the debt settlement and can ask for any plan which can be good for both the parties.
Refinancing your debt
It is the last option to choose when you fail to clear the dues of the lender. In this process, you can take another loan to recover your previous debt. Well, this process is not recommended but if you don’t have any choice, then you may go for the same. But before moving for another loan, just calculate how much amount you need to get the business on track and also calculate the amount to be paid to the lender. Because more you will take, more you will have to pay because the interest rate will be higher as your credit score is already hampered due to the present debt.
Amid going for the refinancing you will have to consider some important factors which may reduce the future stress of clearing the debt. The prime factor is the type of loan, i.e. secured or unsecured and here you will have to choose as per your business requirement and your payment capacity. The other factor is the personal guarantor, if you have the one who have a good credit score and is trustworthy, then you can go for the unsecured loan.
The interest rate also plays a major factor in the business loan. Higher the interest rate, more you will have to pay and vice versa. So, while going for the refinancing process, make sure to go for such lender who offers the loan at low interest rate. Well, it is quite difficult due to your present debt condition, but you can find the one who can support you.
Hence, these were the outcomes if you fail to repay the business loan for any banks just like sbi business loan, hdfc business loan. and the measures for the same are also listed above. So, if you are facing such situation, then go through the same carefully and make sure to consult with the lender and try to avoid further hurdles.