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When an Individual starts his own business, there is a lot of capital required for various purposes depending on the business he wants to operate into and therefore there is cash required for the activities along with working capital and one can’t put that much capital from his saving since he would have to keep some saving for working capital, therefore, the best resort is to get loans from banks or institutions like Non-Banking financial companies (NBFCs). The bank gives us the loan to review our application and in return for it, we need to pay monthly installments which would consist of interest to the bank or institution. There may be a situation wherein one can default on the payment of these installments.
What constitutes as an individual or a business to default on their payments?
According to the Reserve Bank of India (RBI), one will be termed as a defaulter if the loan qualifies as a Non-Performing Asset (NPA) which means based on the 90 days and 120 days delinquency norms. RBI in a recent statement said that the formalization of business under GST have adversely affected the cash flows of smaller entities during the transition phase and they being not able to meet their repayment obligation to banks and institutions.
Therefore to avoid the defaulting of payment on your business loan, we have a few pointers which would prove helpful.
1. Talking to your lender about your situation:
Not being able to pay on time can happen due to a variety of reasons like not able to sustain in the market, sales not picking up or it’s a seasonal hiccup and therefore the first thing to do should be to talk to your lender about it since banks now a days would appreciate the proactive nature of the loan taker and therefore there might even be a solution which they can provide with since the deployment of Insolvency and Bankruptcy Code (IBC), a lot has changed and therefore banks don’t have much to operate and therefore it is better to maintain a steady connection with bank.
2. Refinancing option:
This step should be done before defaulting since if you feel that there is an option from another bank wherein the interest rate is less and the period is extended then you should transfer your loan to another bank which can be done as per balance transfer.
3. Cutting costs on your expenses:
There’s a saying that you should borrow the hat only if you need, therefore taking a grip on the expenses of the business is extremely important when you have a debt or a loan since it is not money and comes with a repayment schedule and the interest rate, therefore, try cutting down the unnecessary expenses of the business.
4. Reschedule your loan:
Debt rescheduling would simply mean that since you are not able to pay your current installments then you reschedule your debt in small amounts by extending your period, this is taken into consideration to the credit agencies which creates a bad score but is still a whole lot better than being declared a loan defaulter.
5. Knowing your payment dates and keeping sufficient balance:
Knowing the payment dates is essential, even though there are regular SMS updates with regard to the loan repayment but it is important so that you keep enough balance in your bank account for the time period of three months since 90 days non repayment would lead to the defaulter status and therefore it is advisable to have that much money in your bank account in advance.