The term “bad debt” or NPL is a word that many people might not want to hear. Nonperforming loan-NPL is a loan on which the debtor has not made the scheduled payments for a period of usually at least 90 days, which will greatly affect your creditability. Once a loan is nonperforming or the borrower is unable to pay back the loan on time, it will indicate that the borrower couldn’t keep a promise or an agreement to make interest payments or repay any principal. Bad credit history not only affects the outcome of your future loan application, but it can also reduce your chances for getting a loan approved compared with people who have good credit record. However, even if you have bad credit, it is still possible to get a loan. Let’s take a look at these 4 steps to get your loan approved.
1. Negotiate with your creditors and find solutions to solve your problem. Sometimes you cannot make a loan payment because outside factors are simply out of your control, these can include a massive fire which damaged a factory building and destroyed the production line or the factory might have been shut down because of the accident, so the business couldn’t generate enough income to cover the debts. If you foresee trouble making payments, it is best to take action by negotiating with your creditors as soon as possible since they might have options to help you such as extending the repayment period by reducing the amount of money required to pay each month. You can also get a lump sum of money from selling an asset and be able to repay partial of your debt.
2. The most important factor for a bank to consider before approving your loans is your willingness to repay a loan. If you don’t give up and try as much as you can either by proving that you are reliable and can be depended on to repay the loan or you could detail your offer to pay off the debt by regular fixed installments, these will show your good intention and willingness to pay off a debt and overcome financial problems.
3. It is best to make loan payments on time as late payments is a key component that banks take into account. Late payments show your inability to repay a current or previous loan and proving yourself and getting people to trust takes time. So in order to repair your past credit mistakes, it takes at least 12 months to improve your credit adequately and to demonstrate that your financial position is back to normal.
4. Clearing your bad debt should be your first priority. If you have bad debt, you will need to clear it up and pay it off. The financial institution will give you a proof of payment document once you paid off the debt in full. You need to keep this document safe as it will improve your chances of getting approved.
For those who are in bad debt, it takes time to improve your credit scores. In the meantime, your business needs a lot of financial discipline. Do not neglect to generate cash flow statement as it indicates how well the business generates cash to cover its debts obligations.