Small Businesses usually run on loans availed either through a Bank, NBFCs, or local lenders. Defaulting on these has dire consequences. If the case is a Bank or an NBFC, here are the ways to ensure how you can avoid defaulting on the same. However, one must always understand what constitutes a loan default.
Any loan account qualifies as a Non-Performing Asset (NPA) or a Bad Loan based on 90-day and 120-day delinquency norms. However, the RBI in its recent statement noted that the formalization of businesses through registration under GST had adversely impacted the cash flows of the smaller businesses or entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and Non-Banking Financial Companies (NBFCs).
To avoid defaulting on Business Loan, these steps prove to be helpful.
Maintain Sufficient Balance
Always try to manage sufficient balance in your bank account to avoid the risk of defaulting the loan. You would be termed a defaulter if you do not pay your due by 90 days from the due date. Usually, Business Loans are a long term relationship and small dent would affect your future finances and they are usually advised to maintain balance at least for 90 days in your account. Businesses are always exposed to unforeseen events and to have a certain breathing time to avoid missing the loan dues.
Be Aware of Your Due dates
Almost all loans today is Auto debited from the accounts through ECS. No matter what you do, it is almost impossible to delay them. However, knowing your dates is important to ensure that your bank account stays sufficiently funded. Though you will not be deemed a defaulter on missing an EMI due date but will attract heavy penalties and late fees.
Talk to your Lender
Businesses are always risky and there are many unforeseen circumstances and requirements that arise from time to time affecting your repayments. If you think that you are about to miss the payment for next due, start a conversation with your lender to find a way out.
Reschedule your loan
There are timely fluctuations in businesses from to time which need to be maneuvered to avoid defaulting to your lender. If you are finding it hard to make payment, start contacting your lender and get your loan tenure increase meanwhile reduce the monthly dues. Debt rescheduling does get reported to credit agencies so this would be a negative on your credit report. However, this is a much better option than being declared a defaulter of a loan.
This is a step that should be followed before you have actually missed payments on your loan. If you increasingly start feeling that your debt is becoming difficult to manage and a lower interest rate and a longer tenure will help, you can actually look at refinancing the existing loan from another lender. Also called a balance transfer, refinancing your existing loan can help you reduce your monthly outgo to a large extent.