Business loans have become a prerequisite for most companies. It is one of the easiest ways to finance their immediate needs and helps them expand.
We find most of the financial lenders offering business loans with different tenure and interest charges.
So what do businesses do when they have a sudden influx of cash? First, they choose to reduce their debt liability. Then, they can either choose to prepay the loan partially or pay it off completely.
When the business chooses to pay the loan entirely before the allocated tenure, it is known as Foreclosure of business loans. It helps SMEs and other businesses in more ways than one, but is it the best option available?
This article walks you through the benefits of foreclosure of business loans and if Shriram City offers it to its customers.
Yes. At Shriram City, we believe in serving our customers in the best way possible. So we understand that the borrowers can feel the need to close their loan amount prematurely. If you are getting a loan with us, you get the facility to wind it up after six months of loan amount disbursal.
Shriram City foreclosure locking period
Shriram City foreclosure procedure entails a lock-in period of six months for all its business loan holders. It means that the borrower cannot close the loan account with us within the first six months of loan amount disbursal.
Let us delve deeper to understand the benefits of business loan foreclosure -
Saving the future loan interest outflow
Interest outflow is one of the most significant periodic outflows for a business, especially if you are an SME. If the business decides that it has enough surplus cash to pay off the entire loan, it can apply for business loan prepayment. It becomes more lucrative when the lender is willing to give a foreclosure discount.
The step will be fruitful only if the amount is significant, the market is bearish, you have no better way to invest the said sum, or you have not paid off most of the interest part. In other cases, it is better not to go forward with foreclosure.
Positively impacts your business’ credit score
Closing your loan account doesn’t directly impact your business’s credit score. But your repayment history will gradually help develop a positive impact on it.
Here is why you should consider against opting for business loan foreclosure –
Burdens the business cash flow
As said earlier, foreclosing is only fruitful if the amount is significant. But if you eke out so much money from your business cycle, it can impact your cash flow and your ability to meet periodic expenses. So you must calculate if the company has enough surplus cash to sustain itself after paying off the loan amount.
Most lenders do not prefer their clients looking for foreclosure of business loans as it puts them in an unwanted interest loss position. So lenders levy foreclosure charges to deter borrowers from opting for it. But, unfortunately, the cost often eats away the interest benefit that the business was looking to generate from the premature closing of their loan account.
Are there any prepayment charges?
Borrowers must understand that requesting foreclosure is an additional responsibility. To cover our costs, we often levy a small amount as a foreclosure charge. It depends on your outstanding principal amount and the pending tenure. The maximum you will have to pay is 6% of the due sum.
For initiating the foreclosure procedure with Shriram City, the applicant has to submit a written application. Then wait for the officials to give you a timeline and the total repayment amount for closing the loan account.
In addition, you are required to submit the following documents –
Once you receive the amount due, you will have to clear it within the given deadline. Post that, you will receive an acknowledgment certificate, a loan closure certificate, and a certificate confirming that you owe no amount to Shriram City.
Shriram City has a history of 45 years in financing small businesses. To ensure that every SME finds its way to us, we have about 947 branches spread across the country. Here is why you should consider taking a business loan from Shriram City -
Businesses often have an immense urge to get themselves debt-free at the earliest. While the thought is noble, the execution should be immaculate. Instead of having it as the primary focus, the impact on business is what should drive your decision to apply for foreclosure.
Several investment vehicles, such as ELSS, ETFs, and more, offer lucrative returns. Investing in these vehicles can prove to be more beneficial than looking to pay off the loan amount. Use cost-benefit analysis to ensure that your decision won’t negatively impact your business.
Foreclosure of business loans is a tedious task unless you choose the right lender. At Shriram City, we ensure that foreclosure is as seamless as processing the loan. Our team of experts will walk you through the benefits and disadvantages of business loan foreclosure to ensure that you make an informed decision.
Click here to apply for a business loan with Shriram City Union Finance.
Yes, several reasons can lead to your lender rejecting your request to foreclose your business loan. For example, it can be the terms and conditions set by the loan provider while sanctioning the loan amount or failing to meet any of the requirements set for the same.
Shriram City foreclosure lock-in period clause doesn’t allow the closure of loan accounts within the first six months of loan disbursal.
Loan foreclosure brings a business close to its dream of being debt-free. It also saves them the future interest outflow associated with the loan.