Between 2015 till now, unsecured business loans have witnessed significant growth. The increase in businesses opting for unsecured business loans is attributed to various reasons like technology-based disbursements, lower interest rates, quicker disbursements etc. In addition, companies like Oxyzo offer unsecured business credit for businesses to carry out their working capital requirement. Overall, all these factors have spurred the demand for unsecured loans in India.

Although availing business loan may be beneficial in most situations, the ease of availing loans accompanied by other unforeseen events in life that may cause you to miss a personal loan EMI.

Who is a Loan Defaulter?

Failure on the borrower’s part to honour several EMIs in a timely fashion and further inability to make payment during the grace period or pay late fees earns the title of a loan defaulter.

Missed loans are classified into two main categories by most major lenders:

Major Defaults – Not honouring your loan EMI for more than 90 days is considered a major default and can severely affect your financial health. In addition, this can affect your ability to access funds in the form of loans in the future.

Minor Defaults – Failure on the borrower’s part to honour the EMIs for less than 90 days is referred to as a minor default.

What happens if Business Loan EMI is Missed?

#1: Affects credit score and ability to obtain finance in future

The credit score is an important factor for all lenders while evaluating a potential borrower. Lenders refer to the credit report and score generated by credit rating agencies. This plays a determining role in whether a business owner’s application is to be accepted or rejected. Missing your EMI payment can lead to a setback in your credit score, affecting your ability to obtain credit in the future.

#2: Increase in the amount payable

Delay in payment of EMIs attracts additional interest, thereby increasing the total amount payable.

#3: Legal Action

Sometimes, lending institutions might initiate legal proceedings to recover the money. However, initially, lenders will try recovering the amount by having discussions with the defaulter. In case of minor defaults such as a missed payment due to a genuine issue, it is recommended that borrowers discuss the issue with their lenders as soon as possible.

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How Can I Avoid Defaulting on my EMI Payments Against Business Loan?

On borrowing a loan, attempts should be made to avoid defaulting on payments; however, in unfortunate situations that might cause you to default on your payments, these are the different options that you can consider:

#1: Plan your finances in advance

Have the right information of the installations you have to make after availing business loan. This, in turn, can help plan your monthly EMIs at the outset, ensuring that your loan repayments do not hinder your living expenses.

#2: Communicate with your lender

Suppose that you foresee an inability to repay the loan amount or even a part of the loan payment due to any reason. In that case, it is in your interest that you communicate to the lender about your economic situation. Other options you can consider in this situation include:

  • In the unfortunate situation that your business comes to a temporary halt, you can request your lender to provide you with a temporary waiver until the situation improves. For instance, during the economic fallout due to the COVID-19 pandemic and subsequent lockdowns, the RBI had directed all lenders to provide a 3-month moratorium facility.
  • You could request your lender to make part payments which can help in reducing the EMI and the interest payable every month.