The Fundamentals of Dealing With Business Loan Defaults
What are business loan defaults?
While a determination of when a debtor may be in default differs amongst creditors, business loan defaults simply means that you have not met your obligations with respect to your agreement to repay a loan. This may be as simple as missing a payment or being late on a single payment, or it may be an avoidance of all payments. This applies to almost all business debt including Merchant Cash Advances and Small Business Administration loans.
Generally, when you are late on a repayment, the creditor will begin contacting you to get its money. Initially, the first communication is usually quite painless which is a simple reminder to you to make payment. As the clock ticks, however, creditors tend to get more aggressive, contacting you repeatedly with stronger language.
As time goes, this will begin to affect your credit score (generally when you’ve been in default for thirty days or longer), which makes it more difficult for you to obtain other loans.
Eventually, if payment is still not made on the business loan default, the debt may be turned over to a collection agency or result in repossession or foreclosure, if your loan was secured by collateral. If you are recently in default, it’s best to be proactive and act now rather than later.
What should you when you are in a business loan defaults?
As soon as possible after you have realized that you are in default or suspect that you will be in the near future, contact your creditor. Discuss your situation in detail with you creditor and consider your options in the circumstances.
Most of the time, creditors would rather work out a payment plan directly with the debtor as opposed to entering into a foreclosure situation. Many a times, foreclosures and repossessions, and collection situations are a consequence of lack of communication between the debtor and the creditor.
What if you cannot afford your business loan defaults?
This may be the reason why debtors are afraid to contact their creditors when they are in default or suspect that they will default on a loan in the near future. They just do not have the money to repay the debt, and they believe that if they contact the creditor it would make matters worse. Thus instead of contacting their creditors they choose to wait and hope that things improve.
The problem with this approach is that creditors will assume that the debtor will never have the intent to pay. The debtor has given them no reason to believe otherwise, thus they will lump the debtor with the rest of their debts and treat the debtor in a standard fashion.
If you are making a legitimate effort to repay your debts, waiting around instead of contacting your creditor, isn’t the best option. It is more likely that you will obtain an easier payment schedule or some other solution if you contact your creditor and deal with the situation.
What if your business loan defaults are already in collection?
In this case, your best bet is to negotiate with the collection agency. You should do this entirely in written form via registered mail with receipt requested, not telephonically, and keep thorough records of this process. Even if they call you, ignore the call and follow up with an email.
Unfortunately, if your debt is already with collections it means that your credit score has already been damaged. However, you should be able to negotiate a conclusion that may reduce the damage for an amount much smaller than the face value of the debt.
Other options to deal with business loan defaults include debt settlement, debt negotiation and filing a Chapter 11 bankruptcy. If you decide to enter into these forms of business loan debt relief strategies, it is important to obtain legal counsel from an experienced business debt relief lawyer. Our team of lawyers at ZocLaw.com are well versed in assisting businesses deal with overwhelming debt. Schedule your free initial consultation today.