The federal bureau has it that businesses defaulted close to 1% of loans in the last quarter of 2018 alone.  A business loan is typically a loan advanced to clients for industrial or commercial use.

These statistics, however, capture the bank loans only and do not capture other lenders. This indicates the default rate could be even higher.

Most business loans face dire loan default consequences depending on the stakes and terms and conditions of the loan.

Business loans are generally more sensitive because defaulting could mean a lot to you as an entrepreneur and to the business as well. With this in mind, here are the reasons why you should never default.

You Lose on Collateral

Most business loans will require signed collateral of other securing assets before it is advanced to you.

The collateral assets could be things like land, homes, cars or other sellable belongings. Once you default or are late on your loan repayment. There is a chance you’ll lose these terms.

Some collateral items such as home or land can be very catastrophic to lose.

No one wants to be homeless and the worst case is that when your business default you cause people around you to harm who are not necessarily connected to the business.

Low Credit Score

Defaulting is the number one cause for poor credit scores in business after late repayment. A credit score is built on the ability of a loan bearer to repay the loan and on time.

Defaulting reads negatively on your business credit score and a cause you detrimental consequences such as reduced loan amounts in the future or the risk of loan firms denying your business a loan.

Ruined Business Reputation

A business reputation is a big asset for any company. While people naturally buy products and services, they also buy into the name and the brand they believe in.

Defaulting a business loan could lead to bankruptcy or could render a company insolvent.

Once this happens it becomes very difficult for customers to believe in the brand again. Once the reputation is soiled, the company loses credibility. Even if it were to come back in operation, it would take longer to pick momentum.

Personal Guarantee Stake

There are entrepreneurs who guarantee business loans using their personal assets such as homes or other assets.

Businesses, in the eyes of the law, are autonomous to the owners. But once you put a personal guarantee on the business loan, you risk losing personal items.

Business agencies act on policies and will nor to hesitate to recover their loans equivalents in cases of default. This puts anyone who guarantees the loans on a personal asset at risk of losing them during collection. Always be careful or better still pay the loan!

Increased Repayment Amount

There are loans that increase the principal or the rate of repayment once you default. This, therefore, means that the longer you default the more the repayment amount becomes.

This may plunge your business to greater liabilities and cause loses or possible business closures.

Additional Charges on the Loan Amount

Apart from increased rates on default, some loan terms dictate that the person should pay additional charges such;

  1. Late payment fees
  2. Defaulting fees
  3. Collection fees in case of collection agency involvement etc

These kinds of charges implicate on the business financial records and may cause a business to go under.

Liquidation of Assets

Liquidating assets point out to a situation whereby a business needs to begin selling its assets to cover cash requirements in its operations. A loan may, therefore, lead to this move.

This is s a dangerous position for any venture as it simply points on a business eating into its own.

Defaulting a loan and getting pressure from collecting agencies may cause this on a business and it is a significant sign that a business may go under.


Being delinquent means that you are overdue for loan repayment, be it a mortgage, tax, or a business loan. There are several consequences of delinquency the main one being its effects on your credit score.

Delinquency on a loan occurs the first day you default a loan and will count until you resolve the loan payment. This means that taking on a loan longer will continue adding on to the effects until the day you fully repay the loan.

In such cases, having defaulted mean that you cannot qualify for most loans during the period until your business gets cleared of the defaulted loan.

This the situation can cause harm to your business as you are unable to meet business needs such as inventory stocking due to possible insufficient funds.

You May Suffer Business Takeover

This is the ultimate consequence for a loan default, a takeover by the lenders or their representative. Technically this is losing your business to your lenders.

Defaulting high business loans can cause you to lose your venture in an endeavor by the lenders to recover their money. If this happens, you not only make financial losses but also have to start from scratch if you intend to own another firm in the future.

The Owed Party May Place a Lien

Placing a lien means that a party owed has the right to keep in custody property belonging to another person until the debt is repaid.

Some loans have it in terms to allow for this. Once you default a business loan, your business is at risk of being seized by the lenders.

The lender has the right to pick whatever asset they deem will repay their loan under the lien policies. This puts a business at risk of losses and closure due to losses and mostly disturbance at the workplace.

Foreclosure May Occur

Once the business deliberation gets to the foreclosure claim, again it is possible to lose the business or parts of through liquidation of the collateral items.

Basically, the lenders will attempt to recover the amount owed by selling the collateral items signed under the loan such as land, houses or assets such as vehicles or machines.

This will impact on your business as it will cause gaps that will need money to purchase sold items.

On the other hand, it can lend one homeless in case the house was signed under the collateral asset for the loan.

Legal battles

Other than all the above loan consequences, a lender can decide to litigate the matter by means of the federal courts. The last thing you want for your business is legal tussles as the can cost you money, business hours and reputation.

What worse, sometimes these battles take years to be resolved. They could also cause some assets to be frozen while the legal battle is ongoing.

This slows down operations and causes your business losses.

In the event your business loses the case, the lender can additionally sue you for damages in the legal tussle for the time they have spent so that your business covers for their cost.

Needleless to say this are additional costs that your business incurs that it may not be in a position to cover adding more salt to the injury of the principal defaulted loan.

High Employee Turnover

Defaulting a business loan may mean getting your business in a series of subsequent loans for the sustainability of the operation.

Chances are that the reason why you defaulted was that the business proceeds could not cover our costs and pay the loan on time. Once you overshoot your repayment date unless you take another loan you may be in trouble for the next foreseeable future.

These troubles may include losing employees due to unpaid salaries or wages. Most employees leave as they begin to lack confidence in the business to sustain them.

You May Lose Customers

Customers begin to leave the moment they realize that you might be in loan tussles with lenders.

Depending on the business you are running, customers will feel unsafe to transact with you as they are unsure of your ability to pay or transact with them. Losing customers is equivalent to losing business, and you do not want that!

Implications on Personal Brand

Whether you run a personal franchise or are the CEO of a business, once you default a business loan of the company you are leading, the burden is laid on your leadership capabilities.

It is assumed that you are unable to manage the operation leading to the loan default and subsequent failure of a company. This could have major consequences in your career advancement.

In worst circumstances, defaulting a business loan can also affect the reputation of employees in case of a closure. Looking for other jobs can be difficult as people always associate you with failure.

Avoid Loan Default Consequences Today

From the above pointers, it is clear that business loans can have catatonic effects on both the business brand and persons working on the business.

As a business owner take all the precautionary measures to avoid loan default consequences. One of the measures is to ensure you have a caring business partner that is ready to partner with your business in terms of loan advancing.

If you are looking for a flexible term loan to grow your business, apply with us today and get up to $500,000 in business loans and more.