What May Happen If You Don’t Keep Up Repayments On A Business Loan?
When you take on a business loan it is important that you are confident that your business is able to maintain the repayments. What are some of the potential consequences if you are not able to do so?
Legal Action – if you default on the loan then the lender may take legal action against the business and, if you have provided a personal guarantee for the liabilities of the business, the lender may also take legal action against you to try to recover any outstanding debt. If the lender has taken security such as a legal mortgage over the business premises then it could go through the courts ultimately resulting in the property being sold to reduce/clear the business loan.
Credit File – If your business does not keep up repayments on the loan then this could have an adverse impact on the business’s credit record with the credit reference agencies. This could make it harder to obtain finance in the future and, if the business can, the interest rate charged may be higher as the business would be perceived by another lender to be a greater risk. In addition, as some suppliers undertake a credit reference search on some businesses that they supply, this could have an adverse impact on your businesses relationship with them.
Extra Costs – If your business defaults on its loan repayments then it could face increased interest payments, late payment fees and other administration costs.
One potential solution, if your business is struggling to maintain the repayments on a business loan, is to approach your existing lender to enquire if it is possible to restructure the borrowing over a longer period of time thus reducing the monthly repayments to a manageable amount. Another option may be to approach a new lender to perhaps consolidate the business loan with other liabilities over an extended period of time.
It is important that if you feel you are struggling to keep up the repayments on a business loan that you discuss the matter with the existing lender at an early stage rather than choosing to ignore the situation in the hope that the problem will go away.