Sadly, in this economic climate, many businesses are closing due to the effects of the pandemic and the strain this is placing on their business and income. In many sectors, it simply isn’t viable to keep your business running, and rising costs mean that, unfortunately, many smaller businesses are being priced out of the market.
If this feels too familiar and you are looking at the closure of your business and being left with debts you need to pay, making sure you know your options when it comes to paying off your business debts is vital. Especially if you are looking at building up a new business in the future or you want to avoid doing permanent damage to your credit score.
Defaulting on Your Business Loans
The circumstances that cause a loan to default will differ depending on your lender and the type of loan. For example, some lenders consider a single missed payment to be a default. Most, however, will not consider your loan to be in default until you have missed multiple payments, there are insufficient funds in your bank account to collect the payment, or a payment is at least 30 days late.
The lender will contact you as soon as your loan becomes delinquent. Typically, your lender will become more aggressive over time. The lender’s remedies will vary depending on the terms of your loan agreement.
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What Should You Do If You Will Default on Your Business Loan?
In the first instance, before you even miss a payment, if possible, you should contact your lender to discuss your circumstances. Opening up the lines of communication can be beneficial when it comes to negotiating new payment terms to help you repay what you owe. Of course, the offers will vary from lender to lender but being upfront will work in your favor.
Suppose you can pay smaller amounts so at least something is paid, then you aren’t defaulting on the whole repayment. For example, if your agreement is $1,000 per month, paying smaller amounts regularly will help you avoid owing the full $1,000 and testify to your willingness to work something out with your lender.
Should I Talk to a Financial Professional?
Depending on the level of debt you are struggling with, it may be worthwhile talking to a debt counselor or bankruptcy lawyer such as Anchor Law Firm. In many cases, bankruptcy will be on the cards when businesses default on their loan payments. As such, getting advice from a bankruptcy lawyer as soon as possible helps you navigate exactly what this means for you going forward.
One important aspect to remember is that typically when you default on a payment, this will show your credit score within one payment cycle. A payment cycle is 30 days, so the default will show almost immediately and immediately impact your future ability to gain credit. Therefore, being proactive as soon as you experience any difficulties will enable you to control the situation and reduce the damage this could cause to your credit score.