Key Takeaways
- It is important to know what happens when a business defaults on a loan in Malaysia.
- Loan defaults in Malaysia occur when borrowers repeatedly violate the terms of their loan agreements, often by missing payments.
- Banks become cautious after default, reducing the chances of obtaining future credit and potentially imposing stringent terms on new loan applications.
- Businesses may face higher interest rates on future loans due to the perceived risk associated with prior defaulting.
- Asset repossession is a possibility if the loan is secured with collateral, such as property or equipment.
From the legal intricacies to the practical aftermath, knowing what happens when a business defaults on a loan can significantly impact its future viability and financial health.
Without further ado, let’s delve into the key aspects of loan defaults in Malaysia and the consequential effects businesses may face.
What are Loan Defaults in Malaysia
Loan defaults in Malaysia refer to situations where a borrower fails to adhere to the legal terms outlined in their loan agreement.
This typically happens when the borrower consistently misses payments. Here’s an elaboration on the concept:
1. Repeated Missed Payments
A loan default occurs when a borrower continuously fails to make payments as scheduled in the loan agreement.
This could be due to various reasons, such as financial difficulties, mismanagement, or unexpected circumstances.
2. No Resolution with the Bank
Despite attempts by the bank to communicate with the borrower and resolve the issue, if the borrower doesn’t cooperate or cannot come to a satisfactory arrangement, the loan may go into default status.
3. Delinquency
Before a loan falls into default, it usually enters a delinquent status. Delinquency happens when a borrower misses a payment.
The duration before a loan is considered delinquent can differ according to the bank and the terms of the loan agreement.
4. Consequences of Delinquency
During the delinquent period, the bank may charge late fees or offer a grace period for payment.
However, if the borrower continues to miss payments and doesn’t address the issue, the loan can escalate to default status.
What Happens When a Business Defaults on a Loan
When a business defaults on a loan, it triggers a series of negative consequences that can significantly impact its financial health and operational viability.
Listed below are some key consequences of what happens when a business defaults on a loan:
1. Lower Credit Scores
Defaulting on a loan has a profound effect on the business’s creditworthiness.
A default is a red flag on the business’s credit report, signalling to banks that the business has failed to meet its financial obligations.
This leads to a substantial drop in the business’s credit scores, making it challenging to obtain future credit or loans.
Lower credit scores can also affect other aspects of the business, such as supplier relationships and insurance premiums.
2. Reduced Chances of Obtaining Future Credit
Following a default, banks become wary of extending credit to the business.
Banks and financial institutions view the business as a higher risk due to its history of non-payment.
Consequently, future loan applications may be rejected outright, or if approved, they may come with stringent terms.
The business may also find it challenging to secure other types of financing, such as lines of credit or business credit cards.
3. Increased Interest Rates
Even if the business manages to secure credit after defaulting, it often faces significantly higher interest rates.
Banks perceive higher risk associated with a business that has previously defaulted, and they adjust interest rates accordingly.
The higher interest rates can add a considerable financial burden to the business, increasing its overall cost of borrowing and reducing its profitability.
4. Asset Repossession
If the business uses assets as collateral, the bank has the legal right to repossess those assets.
For instance, if the business pledged real estate, equipment, or inventory as collateral, the bank can seize these assets to recover the outstanding debt.
Repossession of assets can disrupt the business’s operations and impair its ability to generate revenue.
To regain control of the seized assets, the business must repay the outstanding debt along with any additional costs incurred by the bank.
Read More: What is Overdue Payment in Loan in Malaysia?
Bluebricks’ Loan and Consultancy Services
Grasping the dynamics between your credit card statement balance vs outstanding balance empowers you to make informed financial decisions.
As a debt consolidation agency, we recognise the importance of understanding these balances, providing expert guidance and tailored solutions to help you navigate through your financial challenges.
At Bluebricks, we provide a diverse range of loan-related services, including:
- Personal loan services
- SME loan services
- Mortgage loan services (for buying a new home, refinancing and cashback purposes)
- Collateral loan services
Moreover, our financial consultancy services take into consideration various factors, such as:
- The specific required loan amount.
- How urgent the loan amount is.
- Whether a property has been held by you or your parents for over ten years.
- Your income level.
- Your CTOS score (such as your credit score and credit history).
Why Bluebricks
1. One of the Top 10 Leading Loan Agencies in Malaysia
Our loan agents represent both individuals and businesses, offering technical and financial advice to help secure loan approvals. Even if banks have previously rejected you, we provide access to a broad spectrum of loan options. Our aim is to enhance the success rate of your loan applications and minimise rejections.
2. Over 10 Years of Experience
With over a decade of experience and current banking knowledge, we excel in securing personal, business, mortgage, and collateral loans, navigating challenges like CTOS/CCRIS, and guiding clients confidently towards successful loan approvals.
3. One-Stop Solution
We provide a one-stop loan service, compiling various options from banks and credit institutions for you. Simply submit your income statement, assets, liabilities, employment record, and credit history, and we’ll handle the collateral and documentation to streamline your loan approval process.
4. Full Financing with 100% Bank Loans
We ensure 100% bank loan availability to provide full financial support, making it easier to achieve your goals and build a positive credit history.
5. No Upfront Payment Required
Our no upfront payment policy is designed to ease your financial journey, allowing you to start your investment without initial costs, reducing immediate burden and demonstrating our commitment to your satisfaction and trust.
