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Last updated: 29 Apr, 2018  

Loan.9.Thmb.jpg 4 tips to prevent defaulting on your business loan

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Digikredit Finance Pvt Ltd | 30 Apr, 2018

Defaulting on a loan is a serious breach of trust and you could be liable for penalties, not to mention, loss of your assets.It can be easy to make sure that you never do; all you need to do is follow these 4 simple tips to prevent loan default.

#1 Get a comprehensive idea on the terms and conditions

Before you rush to a lender for business funding, understand the prevalent terms and conditions in the market, as well as those that your shortlisted lender lays before you.

Take the help of an expert to ensure you are clear about every aspect. Read the fine print as you do not want ugly surprises being sprung upon you later.

Pay special attention to the interest rates, repayment terms and refinancing options, should you wish you change your rates or payment schedule later.

Make sure you ask about pre-payment penalties or fines in case of any delay or part-repayment.

If you decide to go for a secured loan, learn to negotiate better terms.

#2 Refinance

If the business loan suddenly seems to be a burden, you can ask the lender for a refinancing option.

When you refinance your existing loan, you can ask for better (lower) interest rates if the market is in the favour of borrowers. If you prefer, you can alsoask for a change in the payment schedule or terms of your existing debt. You can increase (or decrease) the repayment amount or increase (or decrease) the frequency of your repayment.

Loan refinancing works both ways. Besides making the loan burden easier to bear, you can also take advantage of a sudden influx of money or an improved business situation to get better financing.

#3 Prioritise debts

A business needs to spend money to make money. However, in this quest of making more money, don’t neglect business debts. Start every month by taking stock of what you owe to whom and clear that before spending your money on other necessities.

It is possible that you might have more than one type of business funding invested in your business. Always give the topmost priority to your oldest debt. In case of any inability to pay your loan, this lender has first dibs on your assets.

Is your loan collateral free or is it a secured loan? The latter is tied back to your assets or your business. It is imperative to make repayments to secured loans on time to avoid seizure.

Unsecured loans, like credit card are relatively less important. We do not advice not paying them. There are consequences to not paying those bills, but at least non-payment will not interfere in the operations of your business.

Your rent and utility bills are also 'debt'. Clear your dues every month, month-after-month, and you will be able to enjoy these services without interruption, letting your business flourish.

#4 Exercise cost controls

Like we've said earlier in the article, you need to spend money to make money. However, you need to exercise control over your spends.

Check that the money you are spending on necessities, like utilities or raw material, is not more than you need to. Is there a way that you can cut down costs without cutting down on the requirement?

Even if you've taken the business loan to spur business growth, make sure that you do not spend too much, too soon. Have a plan and find ways to cut costs.

*This article is contributed by Digikredit Finance Pvt Ltd , an NBFC,  which operates under the name  SMEcorner.

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Preventing defaulting Loans
Geetha | Thu May 17 10:55:03 2018
It should reach all business people no matter they are following it or not, but still its worth to read

Why would SME needs loans ??
Bhagawath Prasad | Tue May 1 16:18:21 2018
Capital equipment need not be loan it should only go with leasing option , working capital loans are the only one required for business for bridging gap between purchases expenses and receivables , i would say it shouldn't be more than 90 days cycle, But the scenario is different , due to complicated structure of bigger companies accounting mechanism ( generally to suite their cash-flow they keep) and government tenders bill passing clever ideas and means ( every one what I am saying) due to above cited unethical system , SMEs have to go for multiple loans to fund above customers,it's catch 22 situation for SME,if he doesn't take loan , he cant survive,if he takes loan still survival is torturous,thereby SME is hard pressed between big customers,unethical banks ( I mean the way they sell loan products are like facial cream advertisements- once you apply your passerby thinks you are 18 years old,although your real age is 68 ) poor SME get caught in selling techniques and pressures,it's a pressure from all sides,investment pressure,growing operational expenses, unexpected demands from tax departments for all dispute notices, several inexplainable demands from customers and pressure to look good and strong for customers ( do anyone know some big companies don't register if SME don't have working capital that is 25% his of revenue) hence no option to take various loans and get caught in web and loose everything,peace,assets,dreams and life ..I hope SME ministry is reading it.

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