With the UK’s turbulent economic climate, it’s no surprise that businesses, from SMEs to large corporations, are facing financial challenges.
Rising costs, unexpected expenses, or a downturn in sales can create cashflow problems that might make it difficult for you to meet your business loan repayments on time.
While late repayments can seem like a temporary setback, they can have significant consequences for you and your business.
In this blog, we explore some of the key issues that can arise from late business loan repayments and discuss the importance of protecting your personal guarantees.
How many late or missing repayments before a loan default occurs?
Defaulting on a business loan can happen regardless of how much you owe. Depending on the provider, if you have missed or made late repayments over the course of three to six months you can default on your loan.
What are the consequences of late business repayments?
Late repayments can lead to a domino effect of negative consequences for your business. Here are the
- Damaged credit score
Your business credit score plays a crucial role in determining your eligibility for future loans or financing. Late repayments can significantly impact your credit rating, making it challenging to secure good terms in the future.
Lenders may view your business as a higher risk, leading to higher interest rates or even loan rejections.
- Additional charges or fees
When you miss loan repayments, lenders typically impose late payment fees and penalties. These charges can accumulate quickly, which can worsen your financial difficulties.
You may even find that your lender increases the interest rate on your loan, adding further strain on your business.
- Legal action and default notices
If your late repayments are consistent, this can lead to a series of escalating actions for your lender.
They may issue default notices, demanding immediate payment or outlining the consequences of continued non-payment.
If left unresolved, lenders can also take legal action to recover the outstanding debt through court proceedings.
- Personal liability
It’s important to check the terms and conditions of your loan to understand if you could be held personally responsible for paying off outstanding debt.
If you used personal guarantees to secure your business loan, this could make the individuals who signed those guarantees liable if the business cannot fulfil its repayment obligations.
This means that your personal assets, such as your property or your savings could be at risk if you cannot make the repayments.
Being aware of the extent of your personal liability is crucial to understanding the potential risks of your business loan and can help you to take action to protect your assets.
How to protect your personal guarantee
It’s often the case that lenders require personal guarantees from business owners or directors to secure business loans.
A personal guarantee is a binding agreement that holds key individuals involved in the business personally liable for the business’s debts if they fail to repay the loan.
With this in mind, it’s essential to protect your personal guarantee.
One effective solution to safeguard your assets is personal guarantee insurance.
Personal guarantee insurance is a type of financial protection that allows you secure business loans while reducing the risk to your assets. It acts as a safety net by reimbursing a significant portion of the personal guarantee in the event of business insolvency or loan default.
Personal Guarantee Insurance from Purbeck
At Purbeck, we understand the risk involved in signing a personal guarantee. That’s why we specialise in providing personal guarantee insurance, covering up to 80% of the assets used for your personal guarantee.
To find out how our policies can help you to secure a loan to invest in your business with peace of mind, get in touch with our team today.