Managing a business loan can be overwhelming, especially when financial challenges arise. Axis Bank offers a wide range of Axis Bank Business Loan solutions, but when businesses struggle with cash flow or market volatility, repaying these loans can become difficult. If you find yourself in such a situation, loan settlement might be an option to consider.
Loan settlement with Axis Bank involves negotiating with the bank to pay off a portion of your outstanding loan balance in exchange for closing the loan account. While this can provide immediate relief, it also has long-term consequences for your credit score and future borrowing capacity. In this blog, we will guide you through the steps to settle your Axis Bank business loan, along with key factors you need to keep in mind.
What is Business Loan Settlement?
Business loan settlement refers to an agreement between the borrower and the bank, where the borrower pays a negotiated lump sum that is less than the total outstanding loan amount. In exchange, the bank agrees to close the loan account and consider the loan as “settled.” This process is generally pursued when a borrower is under significant financial strain and unable to continue with the original loan repayment schedule.
Loan settlement should be seen as a last resort, as it can have a negative impact on your credit score and future borrowing capacity. However, it offers immediate relief in case of severe financial hardship.
When Should You Consider Settling Your Axis Bank Business Loan?
You should consider settling your Axis Bank business loan in the following situations:
- Severe Cash Flow Issues: If your business is facing a significant reduction in revenue and you can’t afford to meet your loan EMIs (Equated Monthly Instalments).
- Missed Payments: After several missed payments, the outstanding amount might have increased due to penalties and interest, making it harder to repay.
- Business Uncertainty: If your business is going through a phase of financial uncertainty, and there is no foreseeable improvement, settling the loan might be a way to manage your overall debt.
- Risk of Legal Action: If Axis Bank is threatening legal action due to default, settling the loan could help you avoid a lawsuit or seizure of collateral.
Steps to Settle Your Axis Bank Business Loan
Step 1: Analyse Your Financial Position
Before contacting Axis Bank, assess your financial situation thoroughly. Consider:
- Total Outstanding Loan Amount: Know the exact amount you owe, including principal, interest, and any late payment penalties.
- Available Funds: Calculate how much you can realistically afford to offer as a settlement amount in a lump-sum payment.
- Future Business Outlook: Analyse whether your business has the potential to recover, or if settling the loan is the best long-term solution.
This evaluation will help you determine a reasonable settlement offer when negotiating with the bank.
Step 2: Contact Axis Bank
Once you have assessed your financial condition, the next step is to reach out to Axis Bank’s loan recovery or debt management department. Explain your financial difficulties and request a loan settlement.
- Prepare Documentation: Be ready with your loan documents, business financial statements, and other relevant paperwork to support your case.
- Open Communication: Clearly communicate your inability to continue with regular payments and express your intent to settle the loan.
Axis Bank will review your case and decide whether settlement is a viable option for them.
Step 3: Negotiate the Settlement Terms
After Axis Bank agrees to consider a settlement, you’ll need to negotiate the specific terms. Focus on:
- Settlement Amount: The bank will likely offer to settle for a percentage of the total outstanding amount, which could range from 50% to 75%. Be prepared to negotiate this figure based on your ability to pay.
- Waiver of Interest and Penalties: Request the bank to waive any accrued interest and late payment penalties, which can significantly reduce your overall settlement amount.
- Lump-Sum Payment: In most cases, the bank will require you to pay the settlement amount in a one-time lump-sum payment. Ensure you have the necessary funds to do so.
Effective negotiation will help you secure a settlement that is manageable for your financial situation.
Step 4: Confirm and Finalize the Settlement Agreement
Once you’ve agreed on the settlement terms, it is crucial to get the agreement in writing. Ensure that the settlement letter includes:
- Final Settlement Amount: The exact amount you need to pay to close the loan.
- Waiver of Further Claims: A statement that Axis Bank will not pursue any further legal or financial action after the settlement payment.
- Payment Deadline: The date by which you need to make the lump-sum payment.
This written agreement ensures that both parties are clear on the terms and protects you legally.
Step 5: Make the Payment and Obtain a Settlement Certificate
After making the agreed settlement payment, request a Settlement Certificate or No Dues Certificate from Axis Bank. This certificate is crucial as it confirms that the loan has been fully settled and closed.
Additionally, ensure that Axis Bank updates your credit report to reflect the loan as “settled” rather than “defaulted.”
Impact of Loan Settlement on Credit Score
Loan settlement has a significant impact on your credit score. While it may help you avoid legal action or asset seizure, the bank will mark the loan as “settled” rather than “paid in full” on your credit report. This status indicates that you did not repay the entire loan amount, which can lower your credit score.
The settlement will remain on your credit report for up to seven years, which can make it more difficult to obtain future loans or credit cards, as lenders will see you as a higher-risk borrower.
Alternatives to Settling Your Loan
Before opting for loan settlement, consider exploring these alternatives:
Loan Restructuring
Loan restructuring allows you to modify the original loan terms, such as extending the repayment tenure, reducing the interest rate, or providing temporary relief in the form of reduced EMIs. This option can make it easier to manage your repayments without settling the loan.
Refinancing
Refinancing involves taking a new loan to pay off the existing one, usually with better terms such as a lower interest rate or a longer repayment period. This option can help reduce your EMI burden, giving you more time to stabilise your business.
Debt Consolidation
Debt consolidation allows you to combine multiple debts into a single loan with a more favourable interest rate. This can simplify your debt management and help you keep track of payments more easily.
Things to Consider Before Settling Your Loan
- Credit Impact: Understand that loan settlement will negatively affect your credit score for several years.
- Legal Consequences: Ensure that Axis Bank will not take any further legal action after the settlement.
- Lump-Sum Payment: Ensure you have sufficient funds to make the lump-sum payment required for settlement.
- Future Borrowing: Consider whether you might need to take out loans or access credit in the future, as settlement can make it harder to get approved.
Conclusion
Settling an Axis Bank business loan can provide immediate relief if your business is facing financial difficulties. However, it is important to weigh the long-term consequences, particularly the impact on your credit score. If possible, consider alternatives such as loan restructuring, refinancing, or debt consolidation before opting for settlement.
If you decide to proceed with settlement, ensure that the agreement is clearly documented, and always obtain a settlement certificate after making the payment. This certificate is essential for closing the loan account and ensuring that there are no further dues.
By carefully navigating the settlement process and understanding its implications, you can protect your business’s financial future while managing your current loan obligations.
Frequently Asked Questions (FAQ’s)
Ans: Yes, you can negotiate a settlement if your loan is in default. However, the bank may only offer settlement after exploring other recovery options.
Ans: Typically, banks accept 50% to 75% of the outstanding loan amount in a settlement, but the final figure depends on your negotiations with Axis Bank.
Ans: No, settling a loan negatively impacts your credit score, as the loan will be marked as “settled” rather than “paid in full.”
Ans: Failure to make the lump-sum payment within the agreed time frame may result in the settlement offer being revoked, and Axis Bank could take legal action to recover the full loan amount.
Ans: Yes, you can negotiate the settlement terms directly with Axis Bank. However, having a clear understanding of your financial situation will help you secure a more favorable deal.
