What Happens if I Miss a Payment?

Missing a loan or credit line payment can have a significant impact on your business’s financial health, credit score, and relationship with the lender. While FundLocal requires automatic payments to reduce the likelihood of missed payments, it’s still essential to understand the potential consequences and what actions you can take if you encounter financial difficulties that may lead to a missed payment.

This guide outlines the immediate effects of missing a payment, long-term consequences, and steps you can take to prevent or resolve missed payments.

If you miss a payment, the following actions will typically occur:

1. Insufficient Funds and Overdrafts

Since FundLocal requires automatic payments, missing a payment may happen if your business checking account does not have sufficient funds when the automatic deduction is attempted. This could result in your bank charging you overdraft fees or rejecting the payment altogether.

• Impact: Your bank may charge an overdraft fee if there are insufficient funds in your account when the payment is processed.

• Tip: Regularly monitor your account balance to ensure there are always enough funds to cover your automatic payments.

2. Late Payment Fees

Missing a payment can result in late payment fees, which are typically outlined in your loan or line of credit agreement. Late fees add to the total amount owed and can make it more difficult to catch up on future payments.

• Impact: Late fees will increase the overall cost of your loan, as they are added on top of your scheduled payment amount.

• Tip: Make sure your account has enough funds on the payment due date to avoid late fees.

3. Impact on Your Credit Score

Missing a payment can negatively impact your business credit score and, in some cases, your personal credit score (if a personal guarantee was used for the loan). Lenders report missed payments to credit bureaus, which can cause your credit score to drop.

• Impact: A lower credit score can make it harder to secure future financing or may lead to higher interest rates on new loans.

• Tip: Missing even one payment can have a negative effect on your credit, so it’s crucial to take action immediately to avoid further damage.

If the missed payment is not resolved quickly, the consequences can become more severe, potentially impacting your business’s ability to access financing in the future. Here are some of the longer-term effects of missing a payment:

1. Loan Default

If you miss multiple payments or fail to resolve a missed payment, your loan may be considered in default. Defaulting on a loan can lead to serious financial and legal consequences.

• Impact: Defaulting on a loan could result in the lender demanding immediate repayment of the entire outstanding balance (known as acceleration). This can lead to legal action, making it even more challenging for your business to recover.

• Tip: Always communicate with your lender as soon as possible if you’re struggling to make payments to avoid default.

2. Loss of Access to Future Financing

Consistently missing payments or defaulting on a loan can make it much more difficult for your business to access additional funding in the future. Lenders may view your business as a higher risk, resulting in denied applications or higher interest rates on future loans.

• Impact: Limited access to financing could slow your business’s growth or make it difficult to manage cash flow during tough times.

• Tip: Maintaining a good payment history is key to securing future financing on favorable terms.

3. Negative Impact on Business Relationships

Missed payments can also damage your relationship with your lender. Lenders prioritize borrowers who demonstrate responsible financial management and consistent payment behavior. Missed payments may make it harder to negotiate favorable terms or request additional funding in the future.

• Impact: Strained relationships with lenders can limit your financing options and make it harder to receive flexible terms in the future.

• Tip: Being proactive in communication and resolving missed payments quickly can help maintain a positive relationship with your lender.

If you miss a payment or anticipate that you might, it’s important to take immediate action to minimize the negative impact. Here’s what you can do:

1. Contact FundLocal Immediately

If you realize that you’ve missed a payment or if you’re facing financial difficulties that may result in a missed payment, the first step is to contact FundLocal’s support team. Lenders appreciate proactive communication, and they may be able to work with you to find a solution.

• What to Ask: Inquire about grace periods, possible payment adjustments, or deferred payment options.

• Why It’s Important: FundLocal may be able to offer temporary relief or adjust your payment schedule to help you get back on track.

2. Review Your Cash Flow

If you’re missing payments due to a temporary cash flow problem, it’s important to identify the root cause and take steps to address it. This might involve cutting unnecessary expenses, speeding up accounts receivable, or securing additional short-term funding.

• Tip: Perform a cash flow analysis to identify potential areas where you can free up capital and ensure you have enough funds available for future payments.

3. Pay Off the Missed Payment ASAP

The faster you resolve a missed payment, the less impact it will have on your business’s finances and credit. Once you’ve contacted FundLocal and reviewed your cash flow, make it a priority to pay off the missed payment as soon as possible to avoid late fees, interest penalties, and credit damage.

• Tip: If you’re able, make a partial payment to show good faith, even if you can’t cover the full amount immediately.

4. Adjust Future Payment Plans (If Necessary)

If your business is experiencing ongoing cash flow challenges, ask FundLocal about options for adjusting your future repayment plan. In some cases, lenders may offer a temporary payment reduction or a deferment to help your business recover.

• Why It’s Helpful: A modified payment plan can give your business some breathing room to recover without falling further behind on payments.

Taking steps to avoid missed payments is essential to keeping your business financially healthy and maintaining a positive relationship with your lender. Here are some strategies to ensure your payments are made on time:

1. Set Up Account Alerts

Ensure your business checking account has enough funds by setting up low-balance alerts with your bank. These alerts notify you when your balance falls below a certain threshold, giving you time to add funds before the automatic payment is processed.

• Benefit: Helps prevent missed payments due to insufficient funds.

2. Maintain a Cash Reserve

Keep a buffer in your business checking account to cover unexpected expenses or shortfalls. A cash reserve ensures that you can make loan payments even during periods of slow revenue.

• Tip: Aim to maintain enough cash to cover at least one to two months of loan payments.

3. Review Your Repayment Schedule

Make sure that your loan repayment schedule aligns with your business’s cash flow cycles. If your revenue fluctuates seasonally, it may be helpful to adjust your payment schedule to align with your busiest times.

• Tip: Discuss payment schedule adjustments with FundLocal if needed.

4. Create a Detailed Budget

Having a detailed budget helps you track revenue and expenses, ensuring that you allocate enough funds for loan payments. Regularly reviewing your budget can help you spot potential cash flow issues before they lead to missed payments.

1. What happens if I miss a payment with FundLocal?

• If you miss a payment due to insufficient funds, you may incur late fees and potential overdraft charges from your bank. Missing payments can also harm your credit score.

2. Can I negotiate my payment terms if I’m struggling to make payments?

• Yes. If you’re facing financial difficulties, contact FundLocal as soon as possible. In some cases, they may offer temporary relief, such as deferred payments or adjusted terms.

3. Will a missed payment affect my credit score?

• Yes. Missing a payment can negatively impact both your business credit and, in some cases, your personal credit if the loan is personally guaranteed. It’s important to resolve missed payments quickly to minimize the damage.

4. How can I prevent missed payments in the future?

• Set up low-balance alerts, maintain a cash reserve, and review your cash flow regularly to ensure you always have sufficient funds for payments. FundLocal’s automatic payment system is designed to help you stay on track.

If you’ve missed a payment or anticipate financial difficulties, contact FundLocal immediately for assistance. Our support team is ready to help you explore options for resolving missed payments and staying on track with your loan. By taking swift action and working with your lender, you can minimize the impact of missed payments on your business.