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Advices and insights

It is a well-known principle that a contracted credit must be repaid in full. The borrower is committed to paying the principal and interest on time and any applicable fees. The borrower has a better chance of developing his business and repaying his loan if he manages the loan well. Otherwise, he exposes himself and his company to important risks with irreversible consequences. Here are the risks to which you expose yourself in case of a badly managed bank loan.

The risk of insolvency

There is a real risk that you and your company may find yourself in an insolvency situation. This impacts the cash flow of your business and can affect the viability of the structure. On the other hand, you will have difficulty making monthly payments to your lender. This situation will have a domino effect that will put you at greater risk. 

The risk of cash shortage

This refers to a real-life situation in which your company’s coffers are empty. If you don’t manage your credit well, chances are you won’t be able to meet your short-term cash outflows. This means paying off debt, paying suppliers, salaries, tax obligations, etc. The risk of non-payment ultimately leads to the bankruptcy of your company.

The increase of interest until the regularization of due dates

From the first unpaid monthly payment, the creditor can notify you of the risks associated with the incidence of repayment. It may also start charging you additional interest from the second monthly payment onwards until you rectify your situation. This will be visible when you start to pay your instalments again. In practical terms, the law allows the bank to increase the interest rate you will have to pay in predefined proportions until regular payment of the contractual instalments resumes.

Forfeiture of the term

A term is the contractual date on which your credit ends. As long as you respect the terms of the contract, the lender does not have the right to demand early repayment from you. On the other hand, it can avail itself of this prerogative as soon as your monthly payments are no longer paid on time. The incidents of repayment, if the contract provides for it, can involve the forfeiture of the term. This immediately puts an end to the credit before the date initially planned. 

This also entitles the lender to claim all amounts due under the loan. This includes unpaid installments, outstanding principal, late interest, penalties, etc. 

The forfeiture of the term can also be a judicial decision. In all cases, the forfeiture stage precedes the contentious collection procedure.

The risk of legal proceedings

If you are unable to reach an agreement with your bailiff and the creditor, you may find yourself summoned by the creditor before the competent court. Judicial collection allows your creditor to take legal action to obtain your conviction. 

The court process is adversarial and essentially has three phases. First, you will be summoned to appear. There will be a written sentence where the judge will take charge of putting together the file piece by piece. At this level, you will be able to provide counter-memoirs and briefs in reply or in duplicate. Once the investigation phase is over, the judge sets the date for the oral argument by order. This is the oral phase. Of course, a judgment will be rendered and you may be required to settle your debt willingly or by force. The judge’s decision is binding and enforceable. Thus, with this enforceable title, the bank can move on to another stage of the collection procedure. That of the seizure of your goods. However, you have the possibility to appeal against this court decision to the Court of Appeal or even to the Court of Cassation later on. 

Seizure of your property

It is at the end of the judgment that the security you have given in the form of a pledge of business, equipment or securities, a mortgage, etc., may be seized. may be seized. Your creditor can sell these elements to get possession of his claims.

The seizure of your assets can go beyond the real guarantees provided in the contractualization of the loan. The court can authorize the creditor to seize any property belonging to you that will allow the debt to be recovered.

The risk of registration 

When you miss two or more monthly payments, you are registered on the file of the incidents of repayment of the credits. Your lender must warn you beforehand so that you can regularize your situation. If you do nothing, they will put you on the file and notify the credit bureaus of your missed payments. This may appear on your credit history and in the future affect your ability to obtain credit. The registration should not exceed a period of time, usually five years. 

Fees due to insufficient funds for scheduled withdrawals

Finally, when the lender realizes that you do not have enough money in your account to meet a monthly payment scheduled to be paid by pre-authorized debit, it will penalize you. This penalty usually takes the form of an insufficient funds fee. 

Francois Oikpe - Senior Content Manager | Francois loves all things about marketing and entrepreneurship. You name it, he’s most likely read it. When he’s not reading or strategizing, you can find him working on is next content that will help leaders empower their workers.

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