{"id":11985,"date":"2019-04-10T07:00:57","date_gmt":"2019-04-10T13:00:57","guid":{"rendered":"https:\/\/www.lexingtonlaw.com\/blog\/?p=11985"},"modified":"2025-08-25T16:42:05","modified_gmt":"2025-08-25T22:42:05","slug":"business-loan-default","status":"publish","type":"post","link":"https:\/\/www.lexingtonlaw.com\/blog\/loans\/business-loan-default.html","title":{"rendered":"What Happens If You Default on a Business Loan?"},"content":{"rendered":"\n
\"What<\/a><\/figure><\/div>\n\n\n\n

Getting a business loan<\/a> may be necessary if\nyou need capital in the short term, you want to consolidate existing debt, or\nyou’re planning a major purchase. Like any other loan, however, you have to pay\nit back. <\/p>\n\n\n\n

But what happens if you get a business loan\nand you find that you can’t pay? <\/p>\n\n\n\n

That situation could lead to default. Defaulting on a business loan isn’t necessarily the end of the world, but it can have some serious consequences for you and your business. Here’s what you need to know. <\/p>\n\n\n\n

What Does It Mean to Default on a Loan?<\/strong><\/h2>\n\n\n\n

Generally, you default on a business loan when\nyou miss your payments for a set period. The lender sets the time frame. For\ninstance, some business lenders may assign your account default status after\none missed payment while others may wait until you’re 90 to 120 days past due. <\/p>\n\n\n\n

Default is different from being delinquent.\nDelinquency status means you’re late on the loan but the lender hasn’t\ninitiated any collection actions against you yet. In other words, they’re still\ngiving you time to catch up on the payments although they may be tacking on\nlate fees and penalties to the loan balance in the meantime. <\/p>\n\n\n\n

When you default, you’re essentially failing\nto meet the terms of your loan agreement. At this point, the lender may take\nfirmer measures to get you to pay. <\/p>\n\n\n\n

How Lenders Handle Default<\/strong><\/h2>\n\n\n\n
\"business<\/figure>\n\n\n\n

Every lender is different, but after\ndefaulting on a loan, you can expect to receive phone calls or letters\nnotifying you that you’re in default and requesting payment. The lender may\nhandle these communications or it may assign your account to a collection\nagency. <\/p>\n\n\n\n

What happens next depends on whether you took\nout a secured or unsecured business loan. With a secured loan, the lender may\nseize the collateral you put up to satisfy the debt. If there’s no collateral,\nthe lender may sue you. If they win a judgment, they can move to garnish your\nbusiness assets. Your personal assets could also be garnished if you signed a\npersonal guarantee for the loan. <\/p>\n\n\n\n

If the lender doesn’t think they’re going to\nget paid, they may sell the account to a collection agency and charge your\naccount off their books. Now you owe money to the collection agency, not the\nlender. The debt collector can also sue you to try and collect on the loan. <\/p>\n\n\n\n

How Default Affects You and Your Business<\/strong><\/h2>\n\n\n\n

Defaulting on a business loan can impact you\nin more ways than one. <\/p>\n\n\n\n

First, you could lose any collateral<\/a> you pledged to secure\nthe loan. That loss could be costly if the collateral was a high-value piece of\nequipment or real estate. If you secured the loan using cash assets, default\ncould easily deplete your financial reserves. <\/p>\n\n\n\n

Second, having legal action taken against you\ncan inflate financial losses if you’re expected to pay court costs and\nattorneys’ fees for the lender or debt collector who’s suing you. Not to\nmention that having to deal with a court case can be stressful and\ntime-consuming, potentially disrupting your ability to run your business. <\/p>\n\n\n\n

Third, and perhaps most importantly,\ndefaulting on a business loan can be damaging to your credit. Both business and\npersonal credit scoring models incorporate your payment history into score\ncalculations. Even one late payment can significantly detract from your score.\nThe effects can be compounded when you have multiple late payments, the loan is\ncharged-off, or you have a public record stemming from a judgment. <\/p>\n\n\n\n

Whether your business credit score or your personal credit score<\/a> is affected depends on how you acquired the loan. If the loan is in your business’s name, then only your business credit report and scores may be impacted. But if you assumed personal liability for the loan, either by using your Social Security number to apply or signing a personal guarantee, the default will show up on your personal credit history. Negative marks can remain on your credit reports for up to 7 years<\/a>. <\/p>\n\n\n\n

When default lowers your business and\/or\npersonal credit scores, it can become more difficult to get approved for new\nloans, credit cards, lines of credit, or vendor trade lines, all of which could\nimpact your ability to do business. And if you are approved, you may pay much\nhigher interest rates as a consequence of having a lower credit score. <\/p>\n\n\n\n

Take Action to Avoid Default<\/strong><\/h2>\n\n\n\n
\"woman<\/figure>\n\n\n\n

If you think you may be at risk of defaulting\non a business loan, reach out to your lender. They may be able to offer help in\nrestructuring the loan payments or allow you to pause your payments\ntemporarily. Alternatively, you may consider refinancing the loan to make\npayments more manageable. Acting quickly can help lower the odds of ending up\nin default. <\/p>\n\n\n\n

Guest article written by Rebecca Lake<\/em><\/p>\n\n\n\n

Rebecca Lake is a financial journalist covering small business, investing, and personal finance. Her work has appeared online at U.S. News and World Report, Investopedia, and The Balance. She also works with top banking and insurance brands, including Citibank, Ally, Discover Bank, and AIG.<\/em><\/p>\n\n\n\n

\n\n\n\n

If you’re worried about the negative items on your credit report, contact Lexington Law. We work with you to help identify and remove what’s bringing your credit score down. <\/p>\n\n\n\nYou can also carry on the conversation on our social media platforms. Like and follow us on Facebook<\/a> and leave us a tweet on Twitter<\/a>.\n","protected":false},"excerpt":{"rendered":"

What happens if you get a business loan and can’t pay it off? That could lead to default, which can have some serious consequences for you and your business.<\/p>\n","protected":false},"author":63,"featured_media":12001,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[528],"tags":[338],"yoast_head":"\nWhat Happens If You Default on a Business Loan? - Lexington Law<\/title>\n<meta name=\"description\" content=\"What happens if you get a business loan and can't pay it off? 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