CORPORATE AND SECRETARIAL PRACTICES

Class activity

Submitted to
Mr. Bilal Naeem
Submitted by
Muhammad Abdullah Jan
S2017314005
 Default on a loan

Since the loan default can influence a company’s credit score negatively and can make
acquisition of future loans very difficult. It can also impact your company’s market reputation
very badly so a CEO should take every possible measure to avoid getting defaulted. Here are the
steps to take to avoid loan default:

Contact the Lender Right Away 

If the company is suffering from any kind of unsmooth cash flow and you find it
struggling to make any loan payment, the very first step to be taken is to contact your lender. By
contacting him, you can let him know about your current situation and talk to him about all
possible solutions. A lender might extend your loan term, waive of some payments, waive of late
payment charges and even help you with designing a new payment plan. As it is as bad for the
lender as it is for you if you get defaulted. As it will only cause your lender more loss. He is very
likely to extend your due date or let you skip payments for some months instead of declaring you
defaulter as in this case he is more likely get maximum amount of his money back.

Prioritize Your Debts

After getting in touch with your lender, second step is to prioritize your payments based
on your payment status. Try to focus more of your payments to the lenders whose payments are
due for longer period. But this should not mean that all other payments should be totally ignored.

Pay what you can 

 This step includes the small payments to the lender to avoid a full default. This not only
reduce debt little by little but also makes lender believe that you are trying to pay him back.

Cut costs

Next step is to reduce your expenses to the minimum level so that you may be able to pay
your debts. Downsizing of staff, moving to a smaller and cheaper place if you are working at a
place on rent can help cutting your cost and raising money to pay your debt. 

Sell business assets

Liquidation of business assets can also help you temporarily pay off your loans in
extreme conditions.

Consider seeing a debt counselor

If despite your efforts you are still struggling with your debts, you should consult a debt
counselor. A debt counselor can help you with your debt and payment management plan.

Refinance your business loan

Another thing to be done under extreme conditions is to refinance your loan. Although is
not the best option but if you are unable to make your payments this can be used to help you with
that. But following things should be considered while doing so:

 Calculate exactly how much your business will save by refinancing the loan.
 Factor in the origination fees for your new loan and the closing fees of your old loan.

See a bankruptcy lawyer

 Sometimes, default on a loan can be a sign of personal or business bankruptcy in near
future so, planning for it beforehand can prove beneficial. So consulting a bankruptcy lawyer is
suggested.