In India, where access to credit is essential for many businesses to thrive and grow, business loan repayment is a critical element of financial responsibility. Failing to repay loans can have long-term negative consequences for a business’s financial health, its ability to access capital, and its overall reputation with banking institutions.

What is business loan repayment?

Business loan repayment refers to the process by which a business or borrower repays the money borrowed from a financial institution or lender, along with any agreed-upon interest and fees, according to a predefined schedule or terms.

Business loan repayment process of different banks

Have a look at the business loan repayment process followed by major banks of India:

Tata Capital

1. Visit the Tata Capital website
2. Click on ‘Quick Pay’
3. Enter your mobile number or the loan number
4. Click on ‘Pay now’
5. Select a payment method (UPI, Internet banking, NEFT, etc.)
6. Wait for the ‘Payment successful’ message

SBI

• Log in to your SBI account.
• Click on ‘Payments/Transfers’
• Click on ‘Loan repayment’
• Select loan account number
• Enter loan details
• Enter details of the bank account from which money is to be debited
• Click on ‘Submit’

ICICI

1. Log in to ICICI internet banking
2. Click on ‘Loan repayment’
3. Select your bank from the dropdown menu from which you would like to make the payment
4. Enter loan details and the amount payable
5. Click on ‘Pay now’
6. Confirm payment by entering authentication details
7. Receive online confirmation of the payment

HDFC Bank

• Visit the HDFC Bank loan repayment link
• Click on ‘Pay’ after agreeing to terms and conditions
• Enter HDFC Bank loan number and date of birth
• Select you bank from the drop-down menu
• Click on ‘Pay’
• Enter User ID and password
• Enter the amount to be paid
• Confirm payment and receive acknowledgement

Importance of timely business loan repayment

Here are some key reasons why it is crucial to pay off a business loan in time:

• Creditworthiness

Repaying business loans on time positively impacts the creditworthiness of a business. A good credit history can make it easier for a business to secure future loans, negotiate favorable terms, and access credit at lower interest rates.

• Financial stability

Timely repayment of business loans helps maintain financial stability for both the borrower and the lending institution. It ensures that the borrower can meet their financial obligations without defaulting, which can lead to financial distress.

Also read: Sustaining a strong business credit score for seamless business financing

• Access to capital

A good repayment track record enhances a business’s ability to secure additional funding in the future. Financial institutions are more likely to extend credit to businesses with a history of responsible loan repayment. This is especially true in cases of startup business loan repayment.

• Business growth

Access to capital is essential for business growth and expansion. Timely repayment of loans ensures that a company can continue to invest in its operations, hire more employees, purchase equipment, and develop new products or services.

• Legal implications

Defaulting on a loan can have legal consequences, including the possibility of the lender taking legal action to recover the outstanding amount. This can result in additional costs and damage to the business’s reputation.

• Credibility

Maintaining a strong repayment record builds credibility in the business community. Suppliers, partners, and customers may be more willing to engage with a company that is known for meeting its financial commitments.

• Regulatory compliance

In India, the Reserve Bank of India (RBI) and other regulatory authorities have guidelines and regulations governing lending and borrowing practices. Adhering to these guidelines and repaying loans on time ensures that a business remains in compliance with the law.

• Interest savings

Timely loan repayment helps a business avoid late fees and penalties. It also reduces the overall cost of borrowing, as interest does not accumulate on overdue amounts.

• Reputation and trust

Building a reputation for responsible financial management is important for a business’s long-term success. Lenders, investors, and customers are more likely to trust a company that demonstrates a commitment to honoring its financial obligations.

Also read: Syndicated loan: Check process, interest rates, eligibility and more

Points to note while repaying a business loan

There are certain terms you must be familiar with and few points you must bear in mind if you are looking to apply for a business loan:

• Principal repayment

The borrowed amount, known as the principal, needs to be repaid in installments or as per the business loan repayment EMIs mentioned in the loan agreement. These repayments are typically spread out over a fixed period, often in equal or variable amounts.

• Interest payment

In addition to repaying the principal, borrowers must pay interest on the outstanding loan balance. The interest amount is determined by the loan’s interest rate and the remaining balance.

• Loan term

Business loans have a specified loan term, which is the duration over which the loan must be repaid. Loan terms can vary, ranging from a few months to several years, depending on the type of loan and the lender’s terms.

• Repayment schedule

The lender and borrower agree on a repayment schedule outlining when and how often payments are to be made. This schedule can be monthly, quarterly, or according to another agreed-upon frequency.

• Amortised loan

Many business loans are amortising loans, meaning each payment covers both principal and interest. In the early stages of the loan, a larger portion of the payment goes toward interest, while as the loan is repaid, more of the payment goes toward reducing the principal.

• Prepayment and penalties

Some loan agreements may allow for prepayment, allowing the borrower to pay off the loan before the scheduled term ends. However, there may be prepayment penalties or fees associated with this. Borrowers should carefully review the terms of their loan agreement.

For example, Tata Capital allows customers to foreclose their personal loans 6 months after it has been disbursed. However, to foreclose the loan, you will need to pay an additional 4.5% of the outstanding principal along with the applicable GST.

• Late payments

Failing to make loan payments on time can lead to late fees, penalties, and damage to the borrower’s credit score. It is essential to adhere to the agreed-upon payment schedule.

• Full loan repayment

The goal of business loan repayment is to fully repay the borrowed amount, along with all interest and fees. Once the final payment is made, the borrower is relieved of their debt obligation to the lender.

If you are looking to apply for an unsecured business loan visit Tata nexarc. We have partnered with leading lenders and offer unsecured business loans up to ₹50 lakhs. Minimum documentation, low-interest rates and quick disbursal are our product highlights. Check your eligibility in 5 minutes now.

Also read: 9 Factors affecting your CIBIL score value for business loans

Author: Priyanka Babu

Priyanka is a seasoned content marketing professional with more than 6 years of experience crafting various forms of business and technology sector content. Her insightful writing tackles critical issues faced by small-scale manufacturing businesses. Priyanka’s clear and concise communication empowers businesses to make informed decisions and thrive in today’s dynamic business environment.