A third of Singaporeans experienced challenges repaying their home loans during the pandemic. The lender can seize collateral since home loans are secured if the borrower has defaulted. In some cases, the house itself is the collateral, so its dwellers are forced to move out of they can’t pay back the loan.
If you’ve taken out a business loan and have trouble repaying it now, can your business also be seized? It depends on certain factors. A business loan can be secured or unsecured. The good news is, you won’t lose your business if you default on its loan. If it’s a secured loan, you must’ve pledged collateral. In most cases, the pledged collateral is any asset under the business’s name, such as equipment, inventory, cash savings, or deposits.
Hence, those assets will be at stake if you default on your business loan. But to avoid that scenario, take these steps:
1. Talk to Your Lender
If your small business starts facing default risks, approach your lender right away. Some lenders are willing to work with at-risk borrowers. They can help you catch up with your late or potentially late payments.
If your lender agrees to help you, they might allow partial payments for a few months until you get back on track. They might also postpone your loan payments until your business becomes cash positive again. If you’re willing to reduce your costs by extending the loan term, your lender might also agree to that.
2. Know Your Grace Period
If you start missing payments, your lender might give you a grace period. Making your payment within the grace period spares you from penalties. So find out how long is your grace period to give your business time to prepare its payment.
Paying past the grace period will subject you to a late fee. The amount varies per lender, but generally speaking, it’s around 5 percent of the missed payment or a fixed amount, whichever is higher. If you’ve been missing your payments more than once, your lender might call a collector on you.
3. Know Your Rights
Facing the risk of defaulting can draw anxiety. It doesn’t just put your business’s assets at risk but also threatens your security. Some lenders, after all, can be aggressive when demanding payment.
Fortunately, the law protects borrowers from aggressive collectors. No matter how many payments you’ve already missed, a collector isn’t allowed to harass you. They can’t threaten you with an arrest, pretend to work for a government agency, shame you, or collect a debt you don’t owe. Defaulting on a loan or missing payments cannot land you in prison. Besides, if your lender has been secured, they can seize the collateral. And then you can settle whatever amount your collateral didn’t cover. That’s how the process should be like, with no commotions involved.
4. Consolidate Your Debts
A business can also consolidate its debts. This strategy transfers your loan to another entity, whom you have to repay this time around.
A debt consolidation plan in Singapore reduces your interest rate and your overall loan. And since it’s a new loan, it’ll give you new terms, which will extend your due date for the full payment. However, getting approved for debt consolidation isn’t easy. The lender must see your capacity to repay, as with any other type of loan. Your business should remain stable and cash positive to increase your chances of getting approved. Your credit score should also be as high as you can make it. Having other unsecured loans can help you. It can show a lender that you’re a low-risk buyer. It’s ironic, given your situation, but it’s your best bet to save your business’s assets and your reputation.
5. Reduce Costs
If high operational costs cause missed payments, see which expenses you can reduce or remove altogether. Maybe you can negotiate your suppliers’ rates. Many of them will be willing to negotiate, especially if you’ve been working together for a long time.
Assess the waste you generate as well. Paper is a common waste in many small businesses. They drive printing costs up. Embrace technology and switch to digital copies to stop unnecessary paper waste. It can help your business become more sustainable too. If your city rewards sustainable businesses, then you’d get an extra perk for embracing technology.
You can also cut down the costs of employee benefits, but that might be met with protest. If that’s your only choice, reduce the budget for corporate events, not salaries.
Taking these steps will help you get back on track. Your business can overcome risk, and you can focus on making it flourish again.