Corporate loans, also known as business loans, are loans offered to companies and individuals to fund their business activities. There are several types of business loans available in Singapore, such as working capital loans, business term loans, line of credit, overdraft facilities and many more.
There are a variety of reasons for securing a corporate loan. Most, if not all, contribute to the growth and development of your business. However, with financing comes the responsibility of timely repayments.
As a business establishment, you may, on occasion, face cash flow problems and thus be unable to repay your loans on time. The consequences of repayment failure vary, depending on how long you have defaulted and the amount you owe. These consequences also differ based on the type of loan you have, such as secured or unsecured loans.
We will examine some of the more common outcomes from the inability to repay corporate loans in Singapore:
For the first few missed payments, you can still expect the repercussions to be mild. These involve penalties usually laid out in your business loan contract.
The penalties enforced may include extra interest charged to your monthly loan, or a fixed fee. Under some agreements, the penalties or interests may accumulate and become higher for every month that you miss your repayments. These will be detailed clearly in your loan contract. When in doubt, make sure to give the bank or lender a call and seek clarification.
News of unscrupulous debt collectors have long plagued our local news. However, despite the many illegal cases, debt collecting is still an acceptable way for lenders to recover what is owed to them.
With that being said, debt collectors have to operate within the confines of the law when attempting to recover a payment from you. For instance, they are not allowed to physically harm you or abuse you verbally. They are also forbidden from acts of vandalism, stalking and confiscating your personal documents (like your NRIC or ATM cards).
Should you encounter debt collectors who break the law, you have a right to make a police report and obtain protection for yourself and your company.
For secured loans, such as a property backed loan, you risk losing your collateral if the loan repayments are not met for a prolonged period. The banks or private lenders are empowered by your contract to seize the asset that you used as a guarantee.
Subsequently, your asset will be evaluated and then put up for sale or auction, and the proceeds from this asset will be used to pay off the remainder of your loan.
In the case of unsecured loans whereby there are no collaterals, the lender may commence legal proceedings against you in hopes of recovering the unpaid loan. This may begin with a warning letter from the bank or lenders themselves.
If these warning letters’ requests are not met by a certain deadline, you may begin receiving a legal letter of demand from the lender’s lawyers. The next step will involve filing a lawsuit against you for a breach of contract. If they can prove that you have the means to pay, a legal charge could be made for criminal loan default.
The outcomes of any legal proceeding will be especially harmful for your financial reputation, such as your credit scores. In certain cases, certain company assets may be seized and liquidated as repayment to the lender. In extreme cases, the courts may pursue a bankruptcy declaration against your company in hopes of securing a loan settlement.
Defaulting on your loans will have a detrimental effect on your company’s credit scores, as well as your personal creditworthiness. This means that you will face surmounting challenges obtaining any type of financing or loan for your business in the future.
This extends to your personal financing as well. Lenders will be less likely to offer loans to those whose businesses have a poor repayment history.
Apart from personal and corporate financing, you may also find yourself and your business at a disadvantage when applying for government schemes or opportunities.
Businesses should not ignore warning letters from banks or private lenders. Instead, they should reach out for help and communicate with the lenders themselves. Here are some of the options your corporation has for settling outstanding loans:
Lenders and banks can reduce your monthly repayment amount and extend the loan term, or defer the repayments until you can afford to resume. Alternatively, they may consider refinancing your loan for a lower interest rate, thereby reducing your monthly commitments.
This depends on the severity of your financial situation, and your negotiations with the debtor. Most debtors will be willing to renegotiate loan contract terms with you and this should always be the first step. Do not avoid your lenders’ calls or even visits as being unreachable only forces them to take further action.
Certain debtors will allow you to consolidate your debts, streamlining them and making them easier to settle. However, this solution may only apply if your company income fulfils a certain minimum or your company has alternative income sources, such as from asset sales.
As a business, it is important to repay any debts on time, as this can affect not only your credit records but your reputation as a business. This often entails planning in advance and taking the time and effort to explore all possible solutions during unforeseen situations.
Lendingpot makes it easy to make informed decisions. With over 45+ lenders on our platform, coupled with our user-friendly application process, comparing and contrasting multiple loan offers is effortless. Moreover, our intuitive tools are designed to provide clarity on how a loan could influence your business's financial landscape.
Click here to begin your journey towards a fast, simple and fuss free loan process.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.