What Happens if You Default on an Unsecured Business Loan?

As you might already know, a business loan is unsecured, which means that you don’t have to pledge any of your assets as collateral to secure the loan. Now, that doesn’t mean that defaulting on an unsecured business loan has no consequences whatsoever. As a matter of fact, the repercussions for defaulting on such a loan can be far-reaching and can damage your future loan prospects. Here’s a quick look at what would happen if you default on an unsecured business loan.

Your Credit Score Would be Adversely Affected

This is the first consequence that you would experience in the case of default of a business loan. Your financial transactions, especially those concerning lending and credit facilities, that you conduct with a bank or a financial institution are constantly reported to credit bureaus. And based on your track record, you’re assigned a credit score. The higher your credit score, the better off you are.

However, when you default on an unsecured business loan, it is immediately reported to the credit bureaus, who will not only make a record of the same but also reduce your credit score. Since defaulting on loan repayments is considered very serious, the reduction in your credit score would almost always be significant.

Lenders Will Charge a Higher Business Loan Interest Rate

Now, when your credit score takes a hit due to a loan default, lending institutions will be warier when conducting business with you. And as a result, when you apply for a new loan or credit facility, they would most likely charge you a higher business loan interest rate. This puts you at a severe disadvantage since your borrowing costs will increase.


You, Will, be Opening Yourself up for Legal Action

Depending on the circumstances and the terms of the loan agreement, lenders may even choose to pursue legal action in the event of an unsecured business loan default. For instance, you might have a case filed against you and your business for non-repayment of the loan, which can end up causing quite a bit of harm to your reputation.

You Will Face Difficulties in Getting Future Loans

In severe cases like complete default on business loan repayments, your credit score might take such a massive hit that getting any future loans will be extremely difficult. In such cases, you will have to look out for other alternative funding sources to run your business. That said, the business loan interest rates that alternative funding sources charge are almost always exorbitant.

You Maybe Forced to Use Your Personal Assets to Repay the Loan

Some lenders ask for a personal guarantee before granting you an unsecured business loan. In such cases, if you default on a business loan, the lender might even force you to sell your personal assets to repay the loan.


As you can see, the consequences for defaulting on an unsecured business loan are incredibly damaging. That’s why it is essential to ensure that you pay all of your loan obligations on time. Wish to avail a loan for your business? Visit Finserv MARKETS right now. You get to enjoy attractive business loan interest rates, exceptional customer support, and more such benefits. Also, with Finserv MARKETS, all it takes is just 5 simple steps to avail of an unsecured business loan.

Elizabeth R. Cournoyer

Web enthusiast. Internet fanatic. Music geek. Gamer. Reader. Hipster-friendly coffee practitioner. Spent 2001-2007 merchandising human hair in Fort Lauderdale, FL. Spent 2001-2007 short selling tinker toys in Fort Walton Beach, FL. Spent 2001-2007 importing acne in Phoenix, AZ. Spent several months importing methane in Mexico. Spent the better part of the 90's creating marketing channels for wooden horses in Bethesda, MD. Lead a team implementing toy monkeys in Deltona, FL.

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