What Happens To Business Loan If Business Isn't Working
Success and failure are inevitable in business entities. The need for capital is the common denominator between both outcomes. A solid financial flow helps keep everyday operations in check. Business owners rely on their savings or switch to business loans to satisfy their monetary requirements. These loans help tackle immediate capital crunches. They also provide flexible repayment options and competitive interest rates.
While business loans are a secure remedy, they can become a financial burden if you default on payments. But what happens to your business loan in case your business fails?How Do Lenders Deal With Faulty Business Loans?
Lenders offer secured and unsecured business loans. Where unsecured loans do not have collateral supporting them, secured loans have financial assets like jewellery, property, or any precious tangible asset, and other assets as collateral.With a secured loan, the lender can recoup the outstanding amount (principal+ interest) by auctioning the collateralised assets. Depending on the specifics of your loan agreement, the lender can seize any assets you pledged as collateral to recover the losses accrued on the business loan.
Your lender can drag you to court for an unsecured business loan by filing a case against your firm. Though no collateral is involved in unsecured loans, the financial institution can still hold you accountable for missing loan repayment. The lender has the legal right to recover the total loan amount, interest, fines, fees, and other expenses involved in the collection process.Additionally, if your unsecured business loan carries a personal guarantee at the time of loan sanction, your lender can seize your assets to cover any shortfall.
Steps To Manage Your Business Loan When The Business Fails
• You can request the lender to defer payment. Under this arrangement, the borrower can delay the loan payment without attracting interest. It gives you extra time to bring their business operations back in line.
• Reduce your EMI amount to minimise the loan burden. However, this will increase your loan tenure and interest payments.
• You can request the lender for loan restructuring. For example, they can reduce the interest rate, extend the moratorium period for repayment, etc.
• You can choose the One-time settlement or OTS option to manage your business loan during unfavourable conditions. According to RBI norms, the lender must provide OTS to the borrower when a business loan falls into the NPA category. The OTS requires the borrower to settle the loan by paying 25% to 100% of the outstanding balance in a single instalment.
FAQs:
Q1. What are the minimum and maximum tenures for business loans?
Ans. Financial institutions provide business loans to customers for a period ranging from 12 months to 60 months.
Q2. What are the essential documents needed for business loans?
Ans. The list includes the following documents:
• ID proof like Aadhar card, PAN card
• Address proof
• Bank statement
• ITR copies
• Chartered Accountant verified Profit & Loss statement and Balance Sheet
Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.
