Many company owners turn to business loans when opportunities for growth arise, only to have difficulties making the necessary repayments when their circumstances change further down the line.
If you have taken out a business loan and you’re struggling to repay it, read on to find out what this means for you and how to resolve the problem…
What happens when you default on your business loan?
Late payment fees
If you default on your business loan, the first course of action the bank is likely to take involves introducing late payment fees and, in some cases, administration costs for missed payments.
If the company is already experiencing financial difficulties, these late payment fees can often result in the company becoming insolvent (i.e. unable to pay all its debts when they’re due).
An impact on your credit rating
Your credit rating is a reflection of your borrowing behaviour and ability to manage debt effectively.
If you struggle to make the necessary repayments on a business loan, this can have a detrimental impact on your credit rating, which will cause problems when you want to borrow money in the future.
Seizure of personal and business assets
If you’ve taken out a secured business loan – such as an asset-based product – your borrowing will be secured against a particular asset. This asset acts as a safety net for the lender and, should you default on your loan repayments, the lenders have the right to seize the assets and use them to recover any money lost.
County Court Judgement
When you default on a loan, the bank may issue a County Court Judgement (CCJ). This acts as a formal declaration that your company owes money to the creditor and repayment has been ordered.
This document will stay on file for six years, affecting your company’s credit rating and impacting the ability to borrow more money during this time period.
What are your options?
There are a number of options for dealing with a situation where you are struggling to pay back a business loan.
Invoice factoring
Invoice factoring enables you to quickly access the money tied up in outstanding invoices. Instead of waiting weeks to receive the money you’re owed, you’ll receive a high percentage of its value straight away. Once your customers make the payment, the lender will receive this money rather than you. The lender will have control over the collection of the debt throughout this process and they’ll work with your customers on your behalf.
Invoice discounting
Invoice discounting will also give you fast access to the money you’re owed, but you’ll retain control over how these payments are managed. This can be a more discreet option than invoice factoring, as you’ll continue to work with your customers yourself and they don’t need to know that you’re using an invoice finance facility.
Refinancing
Refinancing your business loan is another possible solution, as it may help you to minimise your current debt in a relatively cost-effective way.
If you have a bad credit rating, finding a better interest rate might not be possible, but you might be able to spread the loan over a longer period of time so that you’re paying a more manageable amount each month.
Liquidating your company and starting again
The best option might be to liquidate your company with a Creditors’ Voluntary Liquidation (CVL) and re-start your business without all the historic business debts. The CVL process is a way of dealing with your company’s debts and also fulfilling all your legal obligations as a company director.
Free, confidential advice
If you’re struggling to pay back a loan, our friendly team here at Clarke Bell can help you to find the best option for you and your company.
Our advice is free and confidential. If you appoint us, our fees are very affordable.
Contact our experts today on 0161 907 4044 or [email protected]
