What Happens If I Can't Repay a Business Loan?
Business loans can come with significant teeth. What those teeth might look like depends on whether a loan is secured and backed by a personal guarantee. Depending on how stringent a lender's policies may be, a loan can go into default as soon as one day after a payment is missed. For a small business owner, a loan in default can be highly problematic.3 Types of Small Business Loan Defaults Defaulting on a Secured loan. If a business owner has pledged business or even personal assets as collateral against a small business loan, the lender can seize those assets to repay the debt. Defaulting on an Unsecured loan. Although the lender cannot pursue the borrower's assets, it can charge exorbitant late fees, increase interest rates and even sue the small business and its owner. Defaulting on a Personal Guarantee. Failure to repay a small business loan backed by a personal guarantee allows the lender to pursue repayment from the borrower personally, a scenario that often involves significant legal costs as well. When small business owners become concerned about their ability to repay a business loan, they should immediately contact the lender. Seizing assets and suing small businesses and their owners is time-consuming and expensive for lenders, as it is their objective to help small businesses grow and succeed, not destroy them. As such, lenders will often make every effort, within reason, to restructure a loan that might be headed for default.