Most businesses need a little extra support from time to time, whether in the form of business loans, invoice finance or equipment leasing. It’s a simple transaction – the business owner applies for finance, and they receive a quote for the amount that they can borrow, and the interest rate attached. The business is then required to make repayments on a pre-agreed schedule until the capital plus interest has been repaid. But what happens when you cannot afford to pay back your loan? In this article we look at how to deal with a default.
Defaults are a big risk
Defaults are the biggest risk in the alternative finance sector. Lenders rely on borrowers to make prompt repayments, and when the borrower is unable to do this, they can be subject to legal proceedings or the seizure of any assets being used as collateral for the loan.
However, this is a worst-case scenario.
Act quickly
In reality, most lenders and business finance providers want to help borrowers to stay on top of their payments and avoid situations which might impact on their ability to stay in the black. There are a number of ways to do this, but the first – and most important – rule is to act quickly.
The worst mistake a borrower can make is to try to cover up the fact that they can’t repay their loan. This will only prolong the misery for the borrower, and place the lender at even greater risk of losing their money. Remember, the main reason why businesses apply for finance is to fuel growth plans, and lenders invest in business loans in part as a way of helping British businesses to thrive. If something unexpected has come up – for instance, a cash flow issue or equipment breakdown – the lender has a vested interest in finding a solution that works for all parties.
Contact your lender immediately
If there is even the slightest chance of a default on an upcoming loan payment, borrowers should contact their lenders immediately. They may be able to negotiate a ‘holiday’ from repayments or to extend their funding in a way that helps to keep the business running.
Defaults are on the rise
According to a recent Bank of England Credit Conditions Survey, defaults are on the rise. Defaults are an unavoidable part of the business lending landscape, but borrowers can avoid a lot of the pain that comes with a defaulted payment by simply acting early and maintaining a good relationship with the lender throughout.
How to deal with a default – where to find out more
Established since 1989, Tower Leasing Ltd is a finance broker and funding provider which enable companies across the UK to acquire much needed capital equipment through leasing. We create the opportunity for businesses to manage their cash flow whilst being able to secure the latest assets and technology which enables our customers to stay competitive within the market. Our services also provide the capability to deliver additional funding to support your business growth with our wide range of finance solutions. Find out more about us here.
Image: head in hands by nick farnhill licensed under Creative Commons 4.0
