Next Steps My Company Defaults on a Business Loan?
Bay Area Tax Attorneys – In our previous blog post entitled, Have You Defaulted On a Business Loan, we discussed how defaulting on a business loan can affect the well-being of your company. To learn about strategies on what steps to take next and how to avoid a loan default, refer to the following:
Negotiate terms with your lender. If you default, you can try renegotiating the terms of your loan contract with your lender. While lenders may not always be willing to renegotiate, if you are successful you can minimize the damage to your business’s financial health. Ways to reduce the negative impacts of the loan default include:
• Changing the terms of payment, e.g., paying less per installment but for a longer period of time
• Paying less over more time with a higher interest rate
• Asking your lender to forgive a portion of your late payment and agree to pay on time in the future
Consider government debt relief options. There are some government-backed options for managing debt that you can consider, such as the American Recovery and Reinvestment Act (ARRA), ARC Loan Program. and SBA Loan Program. Read more about Managing Small Business Debt through Government Loans and Refinancing Lifelines here.
Cut costs. Minimize your expenses. Though this may not be an ideal situation, you can consider laying off part of your staff and downsizing your business, among others.
Sell business assets. Liquidating business assets or converting your assets into cash may temporarily help you pay off your loans until you can afford to pay your bills on time again.
Consult a lawyer. Consulting a lawyer about your options may also help you through the process. Learn how to find legal representation for your small business here.
What does this mean for the future of my business?
Difficulty finding new loans. After you default on one loan, it will make it much more difficult to find a new loan. If loans are the chief means of financing your business, then you will be running into some difficult hurdles. You may want to start looking into other methods of funding your business. Read more about alternative financing solutions in I Need Money- Where Do I Get It?
Bankruptcy. If your business cannot repay its loans, you may need to file for bankruptcy. Read more about filing for bankruptcy on our blog Bankruptcy Options for Small Business Owners.
What Can I Do to Avoid a Loan Default?
Of course, the best way to avoid defaulting is to pinpoint the pitfalls of bad loans and avoid them at all costs. To avoid loan defaults, business owners should remember the following best practices:
• Have a concrete payment plan before you decide to borrow
• Do not offer collateral and property in your contract that you cannot afford to lose
• Read the fine print and thoroughly understand the terms of the contract