How Does Business Loan Repayment Work?

Business loans have become one of the most popular financial products for entrepreneurs to raise funds for their businesses. However, once taken, you must pay the loan for business, including the interest and the principal amount. This blog will help you find the answer to the question; how does a business loan repayment work to assist in the process of business loan repayment.

What Is Business Loan Repayment?

When you take a loan for business, the lender grants the desired principal amount that you will have to repay based on the chosen loan tenure with interest. However, good financial institutions provide flexible repayment options for borrowers such that the repayment does not create a financial burden.

When Does The Business Loan Repayment Start?

Customer-oriented financial institutions offer business loans online that are instantly approved and disbursed within 48 hours. Since the loan facility is hugely time-effective, lenders expect the repayment to start immediately from the next month onwards.

Based on the preferred mode of repayment, the lender communicates the repayment plan in detail so that the borrowers can manage their finances and start repaying the loan for business from the following month.

How Does Business Loan Repayment Work?

Lenders use different methods to calculate loan repayment schedules depending on the borrowers needs, the institutional interest rate policy, loan tenure, and the purpose of the borrowed money. Listed below are some of the loan repayment options:

1. Equated Monthly Installments (EMIs)

Borrowers can use EMI options to repay the business loan, which includes payments through a series of scheduled monthly payments. The EMI amount includes a part of both the principal and interest amounts.

Every month, you pay a pre-fixed installment on a certain date until the debt is cleared at the end of the term. The interest on the pending principal amount accumulates over the specified loan period every month.

2. Bullet Payments

In this loan repayment method, the borrowers pay only the interest accumulated on the principal for the loan duration. The principal amount is repaid in a single payment at the end of the loan tenure. Popularly known as interest-only loans, this type of repayment method is extended for a fixed term, with the maximum period being about five years.

3. Balance Transfer

Although balance transfer does not repay the current loan, it is a method of debt restructuring where you can transfer the current outstanding loan amount to a different financial institution.

The balance transfer secures a better loan for business with a financial institution that may offer a lower interest rate or if the borrower is not happy with the services provided by the current lender.

4. Prepayment

You can prepay a loan for a business before the loan tenure ends. Borrowers generally follow the procedure if they have some extra cash and want to close their financial obligations as early as possible. However, loan prepayment may include a penalty that varies from one lender to another.

5. Electronic Clearance Service (ECS)

Electronic Clearance Service is a process to repay a business loan if you do not have a bank account in a financial institution. Under the process, the borrowers give the lender permission to debit the amount of the interest and the principal amount directly from the bank account based on the chosen repayment plan.

The Best Business Loan From IIFL Finance

IIFL Finance is India’s leading financial services company that provides comprehensive and customised business loans to fulfill your capital requirement. You can also transfer your current business loan balance to IIFL Finance, to get a better interest rate and repayment flexibility.

The business loan offers instant funds up to Rs 30 lakh with a quick disbursal process. You can apply for the loan online by verifying your KYC details or offline by visiting IIFL Finance nearest branch. The loan repayment structure is flexible to offer multiple repayment modes to the borrowers through a host of payment means such as standing instructions, NEFT Mandate, ECS, Net-banking, UPI, etc.

FAQs:

Q.1: Is a credit score important for taking a business loan?
Ans: Yes, a good credit score is required to be eligible to take a business loan from a financial institution.

Q.2: Why Is Loan Repayment Important?
Ans: Timely repayment of loans not only reduces one’s liability but also helps to build a good credit history. A positive credit history with no missed installments helps to qualify for a large loan at a negotiable interest rate in the future.

Q.3: What are the Documents Required to Apply for A Business Loan?
Ans:
• Previous 12 months bank statements
• Proof of business registration
• PAN Card and Aadhar Card copy of the Proprietor(s).
• Deed copy and company PAN Card copy in the case of partnerships.