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As a business owner, if you have borrowed a business loan at any point of time, an obvious question to ask would be ‘can I transfer the business loan from one bank to another?’ This can be for several reasons, the most common one being to leverage better business loan interest rates. In general, during business loan transfer the entire unpaid principal amount can be transferred from one bank to another. On that note, let us understand more about the process of business loan transfer, its benefit to businesses and banks, and other details about balance transfer of business loans.
What is the meaning of business loan transfer?
Business loan transfer refers to when a borrower chooses to transfer the balance on their business loan from one bank to another. Depending on the bank’s policies and the business loan agreement, borrowers can transfer one or more of their loans to another bank (usually up to three). This is done usually to reap better interest rates offered by other banks, and the entire unpaid principal can be transferred.
Today, banks and NBFCs offer different types of business loans, often catering to the diverse interests and requirements of its borrowers. Some lenders offer business loan for a grocery shop, business loan for YouTubers, ₹5 lakh business loan without collateral and more. As such, a business loan transfer from one bank to another, often becomes necessary for borrowers for a better deal on their loan tenure and interest rates.
How business loan transfer works?
For a successful business loan transfer to a different bank, it’s advisable to initiate the transfer at the earliest. This is to get better cost benefit ratio. Since the entire remaining principal amount is transferred to a different bank, a small sum for a short tenure will not be beneficial. In most cases, lenders have a lock-in period of 6-12 months, post which the borrower can initiate a loan transfer to another bank.
- Select a new bank you want to transfer your business loan to and apply for loan transfer
- Check with your bank on the process of loan transfer and begin the process and documentation work
- Once the loan is sanctioned, the remaining unpaid loan amount principal is transferred to the new bank (disbursement)
- The new bank repays the remaining amount to the original lending bank
- Your new balance transfer EMI calculation is done as per the new interest rates and other terms
- You begin paying your EMIs to the new bank as scheduled
Key steps to transfer business loan from one bank to another
As an entrepreneur/business owner you can avail a secured or unsecured business loan for various business purposes. These loans come with a business loan repayment schedule and tenure, and interest rate. However, in time, you may get a better offer from a different bank/lender and want to transfer the balance loan amount. As such, let’s understand how business loan transfer from one bank to another works.
Step 1: Check the eligibility requirements for business loan transfer
Different banks and lenders have different eligibility criteria for business loan transfer. It’s therefore important to learn about the eligibility requirements of the new and old bank to commence the loan transfer process.
Example: Business loan transfer from one bank to another HDFC
Whether you have availed a business loan from HDFC Bank or want to transfer an existing business loan to HDFC Bank, your eligibility depends on your loan repayment history. Eligibility for Business Growth Loan can be checked online and offline.
- Business type – Self employed, proprietors, partnership firms
- Business vintage – Must be in existence for 3-4 years and not a start-up/new business
- Age – 21 to 65 years of age
- Annual turnover – Must be a profit making businesses for at least 2 years, with ₹40 lakh as a minimum annual turnover
- Annual income – Must have a minimum annual income (ITR) of at least ₹1.5 lakhs
Note: For business loan transfer from HDFC to any other bank, up to 3 loans can be transferred to the same bank.
Step 2: Arrange for the documents required for balance loan transfer
The documents required for business loan balance transfer is usually similar for most banks and includes KYC documentation. However, some lenders might ask for additional documentation based on the borrower’s profile.
- Identity proof of the borrower – E.g., Aadhaar card, Voter’s ID, Passport
- PAN card – For business and individual
- Address proof of business and individual – E.g., Aadhaar card, Voter’s ID, utility bills, rent/lease agreement copy, premise purchase deed
- Business ownership proof – E.g., utility bills, maintenance bill, municipality bill, trade licence, GST registration certificate
- Proof of business – E.g., Udyam MSME certificate, GST certificate, Business incorporation certificate, Gumasta certificate
- Balance sheets – CA audited/ CA certified balance sheet and P/L statement and last 6 months balance sheet
- ITR with income computation
- Loan sanction letter, details on any other existing loans, partnership deed (if applicable)
Step 3: Wait for other checks and verifications (e.g., CIBIL)
There are a couple of other checks and verifications that the lender will conduct before sanctioning the loan transfer. The common ones include:
- Business credit report
- Individual CIBIL score/ credit score (e.g., checking presence/ removal in CIBIL defaulter’s name list, loan settlement history, loan repayment history, etc.
Step 4: Accept loan transfer application, sanction and disburse amount
Once the bank is satisfied with the borrower’s profile, it will have a final discussion and either accept or reject the business loan transfer application. Once the loan is sanctioned, the new agreement will be signed and the disbursement and transfer process will commence.
Balance transfer cost:
Just like there are business loan foreclosure charges if you close an existing loan, similarly there’s balance transfer cost when you transfer a loan amount. This is a small amount and will have to be paid to the original lending bank.
Why transfer a business loan to a different bank? Top benefits
Let us now take a look at the benefits of a business loan transfer from one bank to another online/offline.
- Better interest rates, i.e., by transferring an existing loan from one bank to another you can leverage better (usually lower) interest rates on your existing loan. For example, Business loan transfer from one bank to another HDFC, is offered at as low as 15.75%.
- Access to additional funds, i.e., in many cases, when you change lenders, the new lender may agree to provide you with additional funds for your business based on your loan repayment history, business credit report, business potential and financials.
- Convenient repayment tenure,e., the loan tenure has a direct impact on your EMIs. By transferring your loan to a different bank, you can increase or decrease your repayment tenure and impact your EMI amount. The longer your loan tenure, the lesser the EMI and vice-versa. In most cases, a tenure of 12-36 months is provided.
How to decide if business loan balance transfer is right for you?
Now that you understand the perks and challenges of transferring a business loan from one bank to another, an important question is – Is this good for your business?
There are benefits and drawbacks – and this is primarily decided by when you are choosing to transfer the amount. The sooner the better. Most lenders allow borrowers to initiate the loan transfer process after 6-12 months of repayment.
However, consider these factors when making a decision:
- How much of the principal amount is left to be paid? If it is too small, the transfer may not be beneficial.
- What are the new interest rates being offered? Does it reduce the EMI significantly or is the difference minor?
- What is the loan tenure being offered? Does this help your finances?
- What are the terms and conditions involved during the loan transfer process?
- What are the other charges and fees involved? E.g., Processing fees, HDFC Bank for instance charges processing fees as low as 0.99%
- How soon can it the loan amount be disbursed?
- Is the application process online or offline? Is it hassle-free and convenient?
In brief, understand that business loan transfer between banks is a preferred option in many cases. It depends on your business’s individual case. In general, always discuss this clause with your original bank during the loan borrowing process to avoid conflict or confusion at a later stage.