Taking a loan might be the best decision you could ever take for your business because you get to take advantage of numerous business opportunities through quick access to funds and increased cash flow for your business.
However, things don’t always work out in real life like they do on paper, which is why loan defaulting is such a recurring issue when it comes to loan repayment. One of the agreed upon terms when taking a loan is the duration and payment plan for that duration so what happens when you default on a loan or cannot pay back during that agreed time or even cannot even pay at all?
Here’s what happens when you default on a loan and how it affects your business as well as your finances.
To properly understand, a loan default only happens after a missed payment at an agreed time. While we understand defaulting on a loan can happen for different reasons like being unable to pay up or sometimes, not even being aware that the debt is piling up especially if they’re automatic payments. Unforeseen circumstances like illness, unemployment can also cause you to default on a loan.
What happens next?
When you default on a loan, you might be notified that your payment is defaulted so that you can pay up as soon as possible. However, missing multiple payments is a huge tip off to your lender that might make them not want to renew your loan as they consider you an account delinquent.
Consequences of defaulting a loan largely depends on the organization or lending entity, but most times, the consequences range from ineligibility for future loans, as well as seizing of properties or collateral until the loan is fully paid up or even selling off the collateral in order to repay the loan.
How do you avoid a loan default?
One way to avoid a loan default is to be very responsive when it comes to issues of finance. Do not wait until the last minute, once you notice that your finance isn’t moving as planned or you might not be able to pay up as planned – notify your account officer to inform you on the options you have (maybe to defer the loan or pause payments for a while until you have the facilities to pay up once more.)
We at Thomas Gilts have plans that assist you as a borrower during tough times and cannot pay up and will help you to find a way around your loan so you don’t default.
We also sometimes renegotiate the terms of your loan , but this happens only when you have a good understanding of your contract and related terms and conditions that apply.
What to do when you default on a loan
If you anticipate you’d default on a loan, the first thing you need to do is contact your us so you can control the damage as much as possible before it affects your credit and reputation with us. The next thing you want to do is pay up what you owe as much as you can even while renegotiating terms or working out a better arrangement with your current state of finance.
Talking to us as financial advisers is another great step so that you can get expert advice on how to go about repaying your debt.
In any case, defaulting on a loan really affects your credibility and business and one way to avoid such defaults is having a back up plan(s) if you want to take out any loan so that no matter what happens, you can pay up what you owe even to an extent.
