A small business lending expert is underscoring that falling behind on loan payments can have serious implications for entrepreneurs and small business owners, as it can negatively impact their credit scores and limit their access to future financing.
Delroy Foster, Head of Regional Credit Sales and Operations at JN Bank Small Business Loans, emphasised that meeting loan obligations helps entrepreneurs to position themselves for future growth.
“Honouring a loan agreement is a legal responsibility and is indicative of personal integrity,” Mr Foster stressed. “Timely loan repayments help you avoid late fees and build a strong credit history.”
Mr Foster further pointed out that poor repayment habits can significantly damage a borrower’s credit risk rating which is an important metric that lending institutions use to assess an individual’s creditworthiness.
“Your payment history is one of the most critical factors that influence your credit score. Once you’re 30 days past due, it’s reported to the credit bureau and that can remain on your record for up to seven years,” he related.
This negative track record, he said, may lead to higher interest rates, stricter lending terms, or denial of credit, which can be particularly problematic for entrepreneurs looking to grow or sustain their business.
According to Mr Foster, defaulting on a loan starts with a single missed payment.
“Delinquency begins immediately after a missed due date. While some institutions may grant waivers in special cases, like following a natural disaster, failure to repay a loan will result in late fees and negative credit reporting after 30 days. Once this happens, there’s likely to be aggressive actions taken to collect the outstanding payment such as persistent follow-up calls or even legal proceedings.”
“In the case of secured loans, borrowers may face repossession or foreclosure if payments are not made. That means you could lose your vehicle, your home, or any other asset that was used to secure the loan. For small business loans, it could mean losing valuable collateral, such as equipment tied to the business and which can disrupt operations and set your business back significantly,” Mr Foster pointed out.
Mr Foster indicated that loan delinquency has far-reaching effects that extend beyond the individual borrower, as unpaid loans may impact the financial institution’s ability to provide funding to other entrepreneurs.
He also emphasised the importance of early communication with lending institutions, noting that many borrowers make the mistake of staying silent when they are experiencing financial difficulties.
“If you find yourself unable to make a payment, reach out to your lender immediately. Doing so can create opportunities to work out solutions, such as payment arrangements, or loan restructuring. Open and honest communication can help to preserve the trust between you and your lender.”
Mr Foster explained that loan delinquency pitfalls can be avoided by using a monthly budget to manage income and expenses effectively.
“Start by tracking all your income and expenses to get a clear picture of your financial habits. Focus on covering critical needs first such as salaries, loan payments, rent or mortgage, utilities, then evaluate discretionary spending to see where adjustments can be made. Even small cutbacks can make a big difference in staying current with your financial obligations,” he suggested.
“Automating loan payments is another useful strategy that helps to ensure that payments are made on time. Also, build an emergency fund, even if it’s small, to provide a cushion during unforeseen financial challenges,” he advised.
