How Can Companies Reduce Business Debt Through Legal Loan Settlement?
Your business can appear healthy on paper and all of a sudden it may seem like your business cannot pay EMIās monthly. Customers may stop paying. Accounts may get blocked. Work dries up for two months. Or you unexpectedly lose a major contract. Soon your term-loan EMIs, cash credit interest, equipment finance EMIs, GST demands, salaries, vendor payments are all competing for a cash pool that is decreasing every day.
If you are the director/proprietor/partner of the company, this crisis usually does not become just an accountancy problem. Soon you may receive recovery calls. Your lender may issue a demand / recall notice. Guarantors you have provided may begin receiving notices. You may even start worrying about enforcement proceedings if you have mortgaged properties.
A business loan settlement is any written agreement you negotiate with your lender when it is not convenient for your company to repay the full outstanding amount as per the agreed terms. This may be called an One Time Settlement (OTS), or restructuring application, or rescheduled payment plan, or waiver or negotiated release depending on your circumstance and your lenderās policies.
Any distressed business needs someone with expertise to go through their documents, liabilities, securities provided, guarantees given, notices received and capacity to pay as a whole. Advocate BK Singh can assist if you the borrower need impartial legal guidance before getting into serious settlement negotiations or to help you reply to actions initiated by the lender.
Why Does Business Loan Debt Become a Serious Concern for Companies in India?
You could have a Business Loan overdrawn against day- day funds. You could have a term loan secured against machinery. You could have purchased stock on cash- credit. You could have raised an unsecured business loan to pay your suppliers. You could have secured another facility against a personal guarantee from a director or against your commercial premises.
You could start to see late payment totals creeping up. You could be hit with penalty fees, collection calls and adverse credit reporting. Your borrowing could be restricted. Your existing creditors could start to review your limits. Directors could become anxious if they have given personal guarantees.
All businesses around India in particular those based in Delhi NCR,Mumbai,Kolkata, Bengaluru, Hyderabad, Chennai, Ahmedabad, Pune & Jaipur need access to ongoing working capital. A short term cashflow issue with receivables can spiral into multiple times larger repayment hell.
BK Singh can guide you through the legal implications of any notices received, guarantees provided, security documents executed and terms of any proposed settlement. Many times people think its just a negotiation of the overdue amount.
What Quick Facts Should a Company Know Before Seeking Business Loan Settlement?
- Business loan settlement is typically a negotiation, not a given discount.
- RBI released a framework governing compromise-settlements by regulated entities in 20 23. It mandates regulated entities to have board-approved policies regarding settlement.
- Whether settlement will be approved, how much will be paid & how much waived depends on the bank/policy and account facts.
- Business loan can be secured or unsecured which can have vastly different legal implications.
- If there is a personal or corporate guarantee involved, that needs separate review. The settlement language should specify if guarantor liability is released as well.
Just because a verbal promise has been made, doesnāt mean the payment is considered settlement. Pay attention to the terms of the settlement in writing.Schedule a consultation with Advocate BK Singh to see which of these scenarios apply to your business loan.
What Does Business Loan Settlement Actually Mean for a Company?
Business loan settlement does not mean simply asking the bank to āreduce the loan.ā
Analysis should begin with the existing obligation/repayment challenge faced by the company. Management should understand how much principal is outstanding, how much interest has accrued/how much is charged, what payments have been made, what security was created, what guarantees given/exposed and what stage of recovery has been reached.
A OTS may be a payment of a negotiated lump sum in exchange for settlement of the lenderās claim per the written terms accepted by the lender. A restructuring proposal is different as the intent can be to continue making payments under different terms rather than settling the account via a compromised payment.
RBIās guidelines also state that if payment of a negotiated settlement amount extends beyond 3 months, it will be treated as restructuring for all prudential purposes.
Who Should Consider Professional Business Loan Settlement Guidance?
If you are a private limited company, LLP/partnership/proprietorship/startup/manufacturing/trading/service business whose repayment capacity has been severely affected, please read this:-
- loan EMIs are eating into your working capital as sales have slumped;
- your big buyers are delaying payments to you;
- cases where there are multiple business loans/matrices to be settled;
- stress on your CC/OD account;
- you have hypothecated an asset e.g.plant/factory/office/building for rent;
- you (directors/partners/relative) have given personal guarantees;
- you have received a legal notice of recall/ call back/ demand/ arbitration from bank;
- you wish to make a compromise settlement offer to your lenders, but donāt know how much to offer.
Loan Settlement Agency deal with borrowers and can guide you on advisory and documentation. For litigation, where there is high exposure please see Advocate BK Singh.
How Does a Professional Business Loan Settlement Review Usually Work?
Doing your Homework isnāt steam rolling a lender itās researching the file before you make your proposal.
WHAT SHOULD YOU CONSIDER WHEN YOU REVIEW A FILE?
Begin with the sanction letter, loan agreement, account statement and collateral documents. Management should understand if the facility is secured/unsecured/guaranteed or a combination of different securities. Overdue amounts can also include interest, backpayments and fees so a routine collections call may not provide you with the full story.
WHY SHOULD YOU CARE ABOUT THE WELLNESS OF THE BUSINESS?
If you are asking someone to consider your settlement offer they will be looking at the financial health of your company and any potential recovery alternatives. Operating losses, slow collections, lost contracts, decreasing revenue, temporary closure, government seizures or any other significant financial distress can play into the big picture of your business.
Which Documents Should a Company Keep Ready?
Its far easier to have a productive consultation when you upload complete loan record as opposed to few scattered whatsApp messages.
Include all important documents such as: -
- sanction letter / facility agreement.
- repayment schedule.
- loan account statement showing current balance.
- cash-credit/od statement ( if any ).
- Mortgage/ hypothecation/ security papers.
- personal and corporate guarantees.
- demand/ recall/ legal notices.
Please note that You can consult with Advocate BK Singh only when you have all the commercial and legal documents before you.
When Should a Company Consult a Lawyer About Business Loan Settlement?
Engage counsel before it gets too confusing internally.
Foreseeable triggers: receipt of a legal notice, SARFAESI notice, arbitration notice or significant monetary demand disputed by the company. Similarly, it makes sense to get advice where substantial collateral or personal assets of directors are at stake in the facility.Review can also be helpful prior to signing/stipulating to an agreement with sweeping admissions, ambiguous waiver provisions or questionable handling of guarantees.
Finally, if you hear one thing from the lender and something very different from recovery agents, it's time to speak with counsel.The goal is not to litigate every loan default. Far from it. Attorney BK Singh can advise a company as to whether a suggested commercial solution adequately mitigates existing legal risk.
Why Should Companies Consider Loan Settlement Agency and Advocate BK Singh?
Business debt issues involve financial concerns, paperwork issues and legal issues. Addressing it only as a negotiation leaves some of these areas vulnerable. Loan Settlement Agency guides borrowers through review of the loan account, settlement agreements, OTS communication, hardship with repayment and collection consequences. Loan Settlement Agency will not guarantee that any particular settlement, waiver or result can or will be achieved.
If there is a need for legal review, borrowers may consult with Advocate BK Singh to review lender notices, terms in the agreement, security and guarantee documents and legal remedies affecting possible settlements.
Frequently Asked Questions
1. What is business loan settlement?
Ans. Business loan settlement is an agreement between you and the lender which gets approved by the lender to settle your business loan.
2. Can we file One Time Settlement from our company?
Ans. Yes, your company can file OTS application. Lender will take decision on the request subject to their discretion and account history.
3. Is settlement guaranteed?
Ans. No. All settlement applications are scrutinized on case to case basis.
4.Can Business loan settlement give relief from our debt?
Ans.If lender agrees to your settlement offer you may get relief from immediate payment.
5. Does the settlement stops recovery process automatically?
Ans.No. Recoveries / Legal process if started will not stop automatically.
You have to request the same after settlement is accepted by the lender.
6.Can it affect the personal guarantees given by directors?
Ans.Yes.Personal guarantees given by directors will be valid until lender or court says otherwise.
7. What documents would be required?
Ans.Loan agreements, bank statements, notices received from lender, proof of repayment done, financial statements, securities provided against loan etc.
8. Can we do settlement if business loan is secured?
Ans.Yes. But if loan is secured then its not advisable to think of settlement.
9.Does the company need to take a legal opinion before paying the settlement amount to lenders?
Ans.Your company should understand the Notices sent by lender, Guarantees given by directors on loans, Securities provided against loan and understand terms of settlement before paying lumpsum amount to lender. Yes, your company can take legal opinion.
10.Can Advocate BK Singh help us with our Business loan settlement issue?
Ans.Yes. Settlement of Business loans is one of the legal services provided by Advocate BK Singh. You can consult him.
Conclusion
Business loan workout offers give struggling businesses a formal way to work out past due debt. Read the terms, guarantees, collateral, notices and possible credit implications of an OTS/settlement prior to accepting one. Have a lawyer review these documents prior to signing to make sure there are no ambiguities and to reduce future litigation. If your business is being harassed by business loan default/recovery call Advocate BK Singh to discuss your legal options.
