The euphoric feeling when acquiring a business loan fades when financial difficulties arise. What happens when you can’t meet the required monthly payment? There’s an overwhelming fear of losing the business you worked so hard to build while anxiety mounts. What happens to the loan if your business is failing?
Going through a rough financial time doesn’t mean you’ll lose your business or your collateral. There are ways to lessen the consequences and prevent you from default.
Communicate
First and foremost, at the first sign of financial problems, you must contact your lender. Don’t wait until you’ve missed a payment or two. Go in and talk with your lender as soon as possible. Once you realize you have a problem and cannot meet your payment obligations, seek guidance immediately.
Many lenders will work with you to keep you from defaulting. The possibility of losing your business, home, vehicle, or other collateral you used to guarantee the loan is a fear factor. However, your lender might be willing to waive the late fee and defer the interest payment.
It would help if you didn’t ignore late or collection notices or the fact that you cannot meet your monthly payment. Lenders would prefer you to be upfront with them. The more honest you are about your circumstances, the more a lender will work with you. Remember, they don’t want to repossess your vehicle or foreclose on your home. The expense to take default action far outweighs the cost of waiving a late fee or two.
Negotiate
If you have gone beyond a couple of months and headed for collection, your lender might be willing to negotiate a debt settlement. This should be a last resort. It will hurt your credit score, and it can extend the terms of the loan, resulting in more financial stress.
Many lenders are willing to negotiate better terms, even temporarily, in times of disaster. If your revenue is severely impacted by a tornado, hurricane, or other natural disasters, your lender will understand a temporary setback. It is common for lenders to work with businesses who must work through a financially tough time due to no fault of their own.
If you have no means to repay the loan, try to negotiate the best debt settlement that won’t leave you in bankruptcy.
Again, communication is paramount. Waiting too long to make contact with your lender can be detrimental.
Estimate
Before you sit down with your lender to discuss your financial difficulties, be sure to estimate your future revenue and expenses. That way, if you do come to a repayment agreement, you are not overextended. Be realistic about what you anticipate in revenue for at least six months, and estimate your expenses as carefully as possible. The new arrangement will give both you and your lender a clearer picture of what you can afford.
The last thing you want to do is agree to something that will bring you back to where you started. Honesty is essential so that your lender can work within your means. You are not the first businessperson to feel a financial crunch, and you will not be the last. Lenders understand the struggles a business owner can face. They know the economy, natural disasters, and other factors that can mean the difference between being black or red.
By keeping good records and understanding your numbers, you will know when financial trouble is lurking. Then you can be proactive with the steps to take with the loan if the business shows signs of failing. Ignorance is not an option. Sitting down with your lender can result in a solution that will provide you with the time needed to weather the storm and give you peace of mind.