Small Business: Preventing or Overcoming Defaulting During COVID

defaulting during covid


As a small business owner, default during COVID is serious. Lenders and borrowers alike are struggling. Banks are losing loan power, and small businesses affected by the pandemic are incurring losses & going into default left-and-right.


Approximately 20% of small businesses fail within their first year of operating. After five years, that failure rate is 50%.


Now, we don’t say that to scare you but to encourage you to use best practices throughout every level of your small business. Staying on top of payments and watching your credit score will be crucial when economic times get hard- like with COVID.


Don’t let defaulting on a loan or missing payments be the cause of your small business’ failure.

Solutions to Prevent Defaulting as a Small Business


Here are a few best practices your business can implement now to curb the impact of defaulting or to prevent it from happening in the first place.

1. Prioritize Debts


To prevent business default, always prioritize your debts. Which debt has the highest interest rate? To whom do you owe the most money? Ask yourself those questions when prioritizing business debt.


However, always pay critical expenses that are imperative to your small business operations. For example, if you MUST have certain supplies to open shop every day, make sure you are in good standing with your vendors and suppliers.

2. Plan Out Costs


business loan default


Defaulting during COVID can be avoided if you understand your upcoming & recurring expenses. Figure out your small business’ overhead, operating expenses, and any other costs in advance. Once you plan out your costs, you can then confirm if you will be able to cover those costs or not. If you cannot cover those costs, consider getting a loan to avoid missing payments.

3. Stay on Top of Things


The best way to prevent business default is to stay on top of things. Find a great financial planner or invest in financial management software. Make payments on time and stay ahead with your finances. This will prevent any negative marks and keep your creditworthiness positive. As a business owner, you always want a great credit score and excellent financial history with lenders, vendors, etc.

4. Reschedule or Refinance


If you are defaulting (or worried about defaulting) during COVID, consider rescheduling or refinancing your debt. Debt restructuring is essentially lowering your monthly payments. This does impact one’s credit score, but it’s better than being declared a defaulter.


Refinancing your small business debt (aka balance transfer) is another way to lower your monthly payments. You’ll be transferring your existing loan to a new lender. Again, this will show up on your credit history, but it is a better alternative to default.

Worried About Defaulting or Have Already Defaulted?


Merchant Funding Solutions can help you navigate the world of defaulting. We can help you if you are in the midst of defaulting, trying to pick your business back up, or need guidance to prevent defaulting. It is always best to take precautionary measures in advance if you fear defaulting in the future. Let’s talk about how to avoid business default.





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