Being a business owner is not easy. Every day is a challenge; procuring inventory, equipment, payments, etc., can be dreadful tasks. The one point of commonality for all business operations is the requirement of funds. The lack thereof can be the cause of stress and constant anxiety. Hence, most business owners tend to opt for business loans from lending institutions. This gives you instant access to working capital.
Despite best intentions, you might be unable to pay back these loans, due to a variety of reasons, including delayed pay, medical emergencies, order cancellations, etc.
What happens if you fail paying back a business loan? This article aims at educating you on exactly that.
What Happens If You Miss a Payment?
With every business loan comes the responsibility of repaying monthly installments as fixed by the lending institution. In case you miss a payment, the following situations arise:
- Loan Delinquency
The state of being unable to pay one or two EMIs is known as Loan Delinquency. Your lender will definitely try to contact you during this period with reminders and/or ultimatums. You can arrange for funds and attempt to clear these payments and continue with the rest of the EMIs as per plan. Your lender may charge a late and/or penalty fee against the late and pending EMIs.
- Loan Default
A loan default is when you are unable to comply with several EMI payments, even after multiple reminders from lenders. This may be followed by a notice, questioning the cause of the loan default. Before serving you with legal action, lenders generally give you a grace period to clear pending EMIs. They often resort to dialogue to renegotiate the terms of the loan. This varies from lender to lender and hence, it is important for you to read the terms and conditions beforehand.
Few Things You Can Do in Case Of Default
For an unsecured business loan, repaying all the installments becomes highly essential since there is no collateral that the lender can sell in the market to regain the money. Here are few things you can do when the financials misalign:
- Inform The Lending Institution:
Even when you’re at a risk of missing a payment, immediately reach out to your lender and give them an overview of the scenario. Work out a deal with them; this will not only ease the situation at present, but will also buy you time for the future. Lenders are more accommodating than you might think, they may extend your due date or pause payments till your business is back in shape.
- The Right Lenders Will Support You:
Remember that the lender’s aim is not to eat up your business or spoil any of your business loan plans. Hence, they might be willing to settle, even if it means settling an unsecured business loan for less than its face amount. They might give you a 10-20% concession on the amount and while it will still appear on your credit report, it will not be a full default. However, there are conditions to all these mentioned.
Must Read: Top Tips to Negotiate a Business Loan in India
Few Things You Can Do to Avoid Default
Instead of depending on the lender to consider your case post-default, follow these financial discipline practices to avoid default completely:
- Avail of a business loan only when absolutely required, and do not start an unnecessary debt. Do it only when you know you can keep the ball rolling. Choose the amount carefully, ensure that it's neither too high nor too low. Assess the need for loans, along with the tenure which will prove to be appropriate for you.
- Make sure that EMIs are not a burden for you, in your business-growing years. You can take the help of an online business loan EMI calculator for the same. The business loan interest rates offered by most NBFCs like SMFG India Credit are competitive, so you can calculate your monthly obligation beforehand.
- The basic aim is to keep EMIs to a minimum. For this reason, compare lenders and go ahead with the one who gives you the best deal. This can save you much in the macro.
- Be mindful of the due dates and prepare in advance for the same. Sign up for an auto-debit facility if needed that ensures your payments at the same time every month. Setting reminders to be certain that you never fail paying back a business loan is important.
Availability of unsecured business loans can have numerous benefits and may prove to be an avenue to upscale your business drastically. SMFG India Credit’s business loan facility allows you to apply for loans from the comfort of your homes through a completely online application process. Flexible tenures and minimal processing fees make the procedure hassle-free and smooth. Go through the documents required for applying and check your eligibility through the business loan eligibility calculator. With the new year, take a resolution to fulfill all your business goals!