What Happens if You Are a Business Loan Defaulter?
Being home to the world’s second-largest population, India currently, is one of the fastest-growing economies in the world and with global exposure to innovative ideas, a popular choice among the working class youth has grown to be entrepreneurship. As often rightfully quoted, “A well thought out strategic business plan can take you places”. But to be honest plans going astray, in the long run, is nothing new and one major and very common example of that is pending business loans.
Business loans are something that every business owner or entrepreneur has to tackle through at least once during their business careers. The problem arises when one fails to repay the business loan that they have availed. This can happen as a consequence of some unfortunate turn of events resulting in a sudden decline in sales or due to some unprecedented circumstances. The moment you welcome a debt against the business you own which you cannot repay, you start paving the pathway for serious damage to your business and your credit score.
What is a Loan Default?
A loan default occurs when the borrower fails to repay the current withstanding loan and hence fails to follow the code of conduct or conditions that were mentioned during the formation of the loan agreement. This can result in the borrower facing legal actions from the lender's part and might lead to serious consequences.
Consequences of being a Business Loan Defaulter
CIBIL score drop –
Every default occurred in the instalment are immediately reported by the lender to the credit agencies. As a result of which, there is a gradual drop in the personal as well as business scores on the borrower’s part, further decreasing the chances of getting approval for future business loans.
In terms of Interest Rates
Once the CIBIL score gets decreased not only the chances of getting future approval for loans become hard as mentioned above but also if by any chance you do manage to get an approval for a future business loan (depending upon the choices of the lender), the interest rate charged with being higher than usual which in turn will drastically affect the repayment of this loan in the future.
Legal Actions Against the Borrower
In the case of business loans, the legal action taken highly depends on the type of loan availed. If the loan availed was secured then complete freedom resides in the hands of the lender regarding the authority of all the assets that were produced by the borrowers as collateral against the loan. But if the loan was unsecured then not many options are left for the lender other than charging a late fee initially then further filing a lawsuit, in case the borrower fails to replay any of the money.
Process of Loan Approval
Once your credit report gets the entry of a loan defaulter the process of acquiring the loan in the future becomes increasingly complicated due to the low CIBIL score.
Thus based on the above points, being a loan defaulter is something that you need to avoid at all costs. This can have serious consequences, the bank can seize your assets and in some worst cases, you might have to file for bankruptcy.