What is a business loan?

Every business need funds to run smoothly and grow. To meet urgent financial needs, or to tide over a crisis in cash flow, you can take a business loan. With the aid of such a loan, you can expand your business and give an impetus to production.

What is abusiness loan default?

Any failure on your part, to honor the repayment terms of the business loan agreement, is known asbusiness loan default. Even though you might genuinely intend to pay back the loan on time and in full, unforeseen circumstances can stall your operations. When your business runs into financial hardships, you may fail to pay back the instalments. It might have serious consequences for your business and your credit history.

What are the businessloan default consequences?

  1. Decline in CIBIL Score:
  2. Every incidence of failure to pay monthly instalment is reported to credit agencies. Consequently, your credit score declines, making approvals on future loans challenging. Both your personal and your business credit score can be hit if you were the personal guarantor for the loan or are the sole proprietor for your business.

  3. Difficulty in getting approval for future loans:
  4. A low CIBIL score and a bad credit history hampers your chances of securing loans for the future, and you will have to look for other means to fund your business.

  5. Increase in charges:
  6. According to your business loan agreement, abusiness loan defaultcan lead to an increase in your rates of interest, and you might have to shell out a steep late fine.

  7. Liquidation of assets:
  8. If you had taken a secured business loan against collaterals, the lending financial institute might sell the assets you had provided as collateral to foreclose the mortgage. If you had signed a personal guarantee for an unsecured loan or provided a lien to your business assets then even in case of unsecured loans, your assets can be seized for repayment of the loan.

  9. Legal Action:
  10. In case of unsecured loans, the lenders initially charge a hefty late fee. In an extreme case scenario, if they do not get the repayment and cannot recover the loaned amount by selling your properties, they might file a lawsuit against you as the business owner.

  11. Filing for bankruptcy:
  12. As mentioned earlier, in case of non-recovery of an unsecured business loan, the lending company may seek legal intervention. You will have to repay the loan as per the terms dictated by the court. However, if you still fail to repay the loan amount, you will have to file for bankruptcy.
Thus, you must ensure the timely repayments of your loan.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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