What If You Can’t Repay an Equipment Loan?

Let’s face it: not every business cycle is smooth.

An unexpected client loss, seasonal downturn, or supply chain delay can put pressure on your cash flow—and suddenly, that equipment loan you budgeted for starts to feel unaffordable.

Many business owners quietly ask:

“What happens if I miss a payment—or worse, can’t keep up at all?”

This post answers that honestly. While defaulting on a loan isn’t ideal, knowing the consequences—and your options—can help you respond proactively rather than reactively.

We’ll cover:

• What happens when you miss payments
• How secured vs. unsecured loans are handled
• How your credit and business are affected
• What options exist to avoid default
• Real tips on communicating with lenders early

First: Don’t Panic—But Don’t Wait

Missing a payment doesn’t mean everything crashes down instantly.

But avoiding the issue won’t make it go away.

Lenders (and brokers like Mehmi) are more flexible when you communicate early, before accounts fall into delinquency. Transparency opens the door to refinancing, deferrals, or short-term support.

Stage-by-Stage: What Happens When You Can’t Repay

1. Late or Missed Payments

• A missed payment usually triggers late fees (typically $25–$150)
• It may be reported to credit bureaus if unpaid for 30+ days
• Some lenders offer a grace period of 7–10 days
• Loan remains active, but risk increases

2. Continued Non-Payment (30–90 Days)

• Loan status becomes delinquent
• Interest and fees continue to accrue
• Lender may begin collections calls or issue legal notices
• You may lose access to future credit or refinancing with that lender

3. Default & Repossession

Most equipment loans in Canada are secured—meaning the lender can legally repossess the asset if the loan is unpaid.

This is typically triggered at 90+ days of non-payment, although timelines vary.

What Happens:

• Lender sends a final demand letter
• Asset (e.g., truck, machine) is located and collected
• Equipment is sold at auction or dealer resale
• If sale proceeds are less than the loan balance, you owe the difference

Explore: Secured vs. Unsecured Loans

What Happens to Your Credit?

Both personal and business credit can be affected, especially if you signed a personal guarantee (which is common).

• Missed payments are reported to Equifax and TransUnion
• Credit score may drop significantly if account is charged off
• May be flagged as “slow pay,” “delinquent,” or “in collections”
• Future financing may require higher rates or additional collateral

Explore: Personal Guarantees in Equipment Financing

Options If You’re Struggling With Payments

The earlier you act, the more control you retain. Here are some proactive steps:

✅ 1. Talk to Your Lender or Broker

Explain the situation before you default. Many lenders will:

• Offer short-term deferral
• Move a payment to the end of the term
• Waive late fees if addressed quickly

✅ 2. Explore Refinancing

If your credit or business outlook has improved since the original loan, refinancing can:

• Lower your monthly payment
• Extend your term
• Consolidate multiple loans into one

Explore: When and How to Refinance Your Equipment Loan

✅ 3. Sell the Equipment Privately

If you're falling behind but still control the asset, consider selling it before repossession.

• You may get a higher value than the lender would at auction
• Use proceeds to pay off the loan
• Avoids damage to credit and legal costs

✅ 4. Use a Business Line of Credit Temporarily

If the challenge is short-term (e.g. seasonal cash crunch), bridge financing may help cover a few months of payments.

Explore: Working Capital Options

Real Case Study: Salvaging a Lease in Time

Business: Food truck operator in BC
Issue: Lost key location, sales dropped 70%
Lease: $38,000 for kitchen trailer, $1,055/month
Problem: Missed two payments, feared repossession

What They Did:

• Called Mehmi after 45 days late
• We helped contact lender, who deferred 1 payment
• Owner sublet truck to a catering business for cash flow
• Payments resumed in 30 days, credit protected

Result: No repossession, no long-term credit impact, and the business pivoted to survive.

FAQs: What If I Can’t Repay?

Will I go bankrupt if I default?
Not necessarily. Many business owners restructure or sell the asset. Default is serious—but not the end of your business.

Can I get financing again after default?
Yes, but it may take 12–24 months of rebuilding credit and financials. Alternative lenders may still help.

Can I just give the equipment back and walk away?
No. “Voluntary repossession” may reduce fees but still affects credit, and you may owe a shortfall balance.

Final Word: Facing Challenges Doesn’t Mean Failure

Missing a payment doesn’t define your business—it’s how you respond that matters.

At Mehmi, we believe in building long-term relationships—not just one-time loans. That means offering honest advice, realistic solutions, and support when times get tough.

If you’re struggling to keep up, reach out before it becomes unmanageable.

Need to restructure your payments or explore refinancing options?
Speak to a credit analyst or use our calculator to see if a lower monthly payment is possible.

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