January 15

Effects of Non-repayment of Loans



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Effects of Non-repayment of Loans

If you are unable to repay your loan to the agreed terms, there will be some negative consequences to you and your business: Defaulting on repayment of loans

  • Low Credit Score A determining factor in business credit scores is your ability to make prompt payment on loans. If you do not pay your loans as at when due, this will hamper on your business credit score. This will reduce your chances of getting loans in the future as it will be difficult to get a lender’s approval for a loan.
  • Loss of Collateral
    A prerequisite for many business loans is collateral. Therefore, there is a possibility you could lose your collateral if you default in loan repayment. This is can be liquidated quickly, either bonds or a company vehicle.
  • U.S. Treasury Involvement The U.S Treasury Department usually gets involved in most cases when business owners are unable to repay loans. Money in your bank accounts, wages, and tax refunds will be summed up until the business loan is fully repaid. It is important to pay back your loans and avoid all your assets going down the drain.

Repaying a Business Loan With A Credit Card

Paying your loans through your credit card involves you shifting the business loan to your business (or personal) credit card. This helps and ensures you make your payments promptly and without delay. Most lenders will not consider this as a problem there are several reasons why this might be a bad idea:

  • It Doesn’t Eliminate Debt Seriously speaking, when you pay your debt using your credit card you are just shifting debt to a different source. It’s also very likely that if you are struggling to pay back the business loan, you very well may start having trouble paying back bigger payments on the credit card as well.
  • Transfer Fees Most banks or lenders will require a transfer fee when you pay your loan with a credit card. This can be at the rate of 1% to 5% of the amount transferred. This can increase your total cost.
  • High-Interest Rates Interest rates on credit cards are usually higher than rates on a business loan. This indicates that you may be incurring more debt by paying off loans with a credit card and there is a likelihood your business will lose lots of money.

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