Running a business often comes with its own set of financial challenges, and sometimes, keeping up with business loan repayments becomes difficult due to unexpected circumstances. RBL Bank offers business loans to help businesses grow, but when financial difficulties arise, paying back the loan might feel overwhelming. If you’re struggling to meet your loan commitments, settling your RBL Bank business loan could be an option to consider.
Loan settlement involves negotiating with the bank to repay an amount that is less than the total outstanding balance. While this option may seem like a relief, it can have long-term effects on your credit score and financial standing. In this guide, we will take you through the steps to settle your RBL Bank business loan effectively, with tips on how to negotiate the best settlement possible.
What is Business Loan Settlement?
Business loan settlement refers to the process of negotiating with the bank to repay a portion of the total outstanding loan amount. Instead of repaying the full balance, the bank agrees to accept a reduced lump sum to close the loan account. This option is typically pursued when a borrower is in severe financial distress and unable to meet the original loan terms.
While settlement may provide immediate relief from financial pressure, it comes with long-term consequences, particularly concerning your credit score. Therefore, it’s important to understand the settlement process and its impact before opting for this route.
Why Should You Consider Settling Your RBL Bank Business Loan?
Settling a business loan with RBL Bank might become a necessity under certain circumstances, such as:
- Financial Difficulties: Your business may be struggling due to cash flow issues, making it impossible to meet the monthly loan EMIs.
- Missed Payments: If you’ve missed several payments and the outstanding amount has grown significantly due to penalties and interest.
- Risk of Legal Action: If RBL Bank is considering legal action or seizure of collateral, settling may be a way to avoid those consequences.
- Debt Accumulation: When your debt burden becomes unmanageable, settling one loan can provide some breathing space to focus on other financial obligations.
In such cases, negotiating a settlement might be the best way to manage your financial situation.
Steps to Settle Your RBL Bank Business Loan
Step 1: Evaluate Your Financial Situation
Before you approach RBL Bank for a settlement, take a thorough look at your financial condition. This will help you determine how much you can realistically offer as a settlement amount. Factors to evaluate include:
- Total Outstanding Balance: The total amount you owe, including the principal, interest, and any penalties.
- Available Funds: Assess how much you can afford to pay as a lump-sum settlement.
- Business Viability: Is your business likely to recover from its financial difficulties, or is settlement the best option for long-term relief?
Understanding your finances will help you come up with a realistic offer during settlement negotiations.
Step 2: Contact RBL Bank
Once you have assessed your financial situation, it’s time to initiate communication with RBL Bank. Contact their loan recovery department or visit the nearest branch to explain your financial challenges and request a loan settlement.
- Prepare Documents: Have your business’s financial statements, loan documents, and other relevant paperwork ready to support your case.
- Express Your Intent: Be clear about your intention to settle the loan and explain why you are unable to repay the full amount.
RBL Bank will assess your request and review your financial situation to determine whether settlement is a viable option.
Step 3: Negotiate Terms of Settlement
Once RBL Bank agrees to discuss a settlement, the negotiation process begins. Key factors to focus on during negotiations include:
- Settlement Amount: The bank may agree to settle the loan for a percentage of the outstanding balance. Typically, settlement offers range from 50% to 75% of the total amount owed.
- Waiver of Penalties and Interest: Request the bank to waive any accumulated penalties and extra interest charges to reduce the overall settlement amount.
- Lump-Sum Payment: Loan settlements usually require a one-time payment, so make sure you have the funds available to meet the bank’s requirements.
Negotiating the best possible terms requires clear communication and a detailed explanation of your financial limitations.
Step 4: Confirm the Settlement Agreement
Once both parties agree on the settlement terms, it’s crucial to get everything in writing. Ensure the settlement letter includes:
- Final Settlement Amount: The agreed-upon amount that you’ll pay to close the loan.
- Waiver of Future Claims: A statement that RBL Bank will not pursue any further legal action or claims after the settlement payment.
- Payment Deadline: The exact date by which the lump-sum payment must be made.
Having a written agreement protects you legally and ensures that the settlement terms are binding.
Step 5: Make the Payment and Obtain a Settlement Certificate
After you make the agreed settlement payment, request a Settlement Certificate or No Dues Certificate from RBL Bank. This document officially confirms that the loan has been closed and no further dues remain.
Additionally, ensure that RBL Bank updates your credit report to reflect that the loan has been settled. While the loan won’t be marked as “paid in full,” it will show as “settled,” which is crucial for future financial planning.
Impact of Settlement on Credit Score
Although loan settlement might solve your immediate financial problem, it has a significant impact on your credit score. Some consequences include:
- Lower Credit Score: Loan settlement negatively impacts your credit report, as it reflects that you were unable to repay the full loan amount.
- Difficulty in Future Borrowing: Once your credit report shows a settled loan, other lenders may view you as a higher-risk borrower, making it harder to get approved for future loans.
Alternatives to Loan Settlement
Before proceeding with loan settlement, consider these alternative solutions:
Loan Restructuring
RBL Bank may allow you to restructure the loan by modifying its terms. Loan restructuring can include extending the repayment tenure, lowering the interest rate, or temporarily pausing payments to give you time to stabilise your finances.
Refinancing the Loan
You might also consider refinancing the loan by taking a new loan with better terms to pay off the existing one. This can reduce the EMI burden and provide a longer repayment period, making it easier to manage your finances.
Debt Counselling
Seek help from a debt counsellor to explore other strategies for debt management. They can guide you in finding the most suitable solution without damaging your credit score.
Key Factors to Keep in Mind Before Settling
- Impact on Credit: Understand the long-term consequences of settling the loan on your credit score.
- Alternative Options: Explore restructuring and refinancing before settling.
- Lump-Sum Requirement: Ensure you can meet the lump-sum payment requirement for settlement.
- Legal Implications: Confirm that RBL Bank will not pursue further legal actions once the settlement is complete.
Conclusion
Settling an RBL Bank business loan may be a feasible solution if your business is struggling financially and you cannot continue making regular repayments. However, before you proceed, it’s crucial to understand the consequences, particularly the impact on your credit score. Additionally, explore alternatives like restructuring or refinancing to find the best solution for your financial situation.
Loan settlement should always be viewed as a last resort. When you decide to move forward, ensure that you negotiate the best possible settlement terms, and obtain a settlement certificate to officially close the loan.
Frequently Asked Questions (FAQ’s)
Ans: Yes, you can settle your RBL Bank business loan even if it’s in default. However, the bank may only offer settlement after exhausting other recovery options.
Ans: The settlement process can take anywhere between 30 to 60 days, depending on how quickly negotiations proceed and the time required to make the payment.
Ans: Yes, settling a loan will negatively affect your credit score. The loan will be marked as “settled” rather than “paid in full” on your credit report.
Ans: If you cannot make a lump-sum payment, consider asking the bank for a loan restructuring or explore other alternatives, such as refinancing.
Ans: Yes, you can negotiate the settlement amount with RBL Bank. Typically, banks are willing to accept between 50% to 75% of the outstanding balance as a settlement amount.
