How Can an MSME Loan Settlement Agency Help Businesses in Default?
When you have a loan that isn't getting repaid you start noticing things that usually go unnoticed. You will have vendors calling on you for dues. You'll have your staff expecting salaries and the bank calling for EMIs. As an SME it can be just one bad quarter and everything you've worked towards could be in jeopardy.
A MSME Loan Settlement agency is there to help your Micro, Small & Medium Enterprise find ways to pay or settle your existing loans. They will help you negotiate with banks and educate you about what happens during recoveries. Helping borrowers come up with viable options instead of false promises.
Lets say you own a small manufacturing plant in noida. Your biggest client hasn't paid you a significant amount of money. You now have EMIs piling up for machines. Bills and salary's that need to be met. Once you default on a few EMI's you'll receive a notice from your lender.You know you want to pay back the bank but don't have the funds available right now.
This scenario happens to many. Whether your trading, manufacturing or even run a service business. There can be many reasons for being under financial duress. Its not always that you aren't going to be able to repay your debt. It may be due to receivable not being collected or a dip in orders.
If your facing Legal Notice/Recovery/Issues with Guarantors/Secured Asset you can talk to Advocate BK Singh.
Why MSME Loan Defaults Matter in India
MSME in India covers Manufacturers Wholesaler Retailer Service Provider and many more which runs on Family Business.
Delhi NCR Ghaziabad Faridabad Gurugram Meerut Lucknow Jaipur Mumbai Pune Bengaluru Hyderabad Chennai Kolkata etc. Most of these business require funds on loan for running there working capital.
If your Customer is taking time to pay you you can be in multiple situations at once.
You may be a Manufacturer who have funds tied up in receivable or you could be transporter who took loan against his Commercial vehicle and are facing less bookings. You could be small contractor who have receivable from projects and have EMI pending with Bank.
So what happens if you default on your Loan?
There can be many implication like Additional charges being added to your account. Your Credit History getting impacted. Inability to get Working Capital Funds. Recovery action by Lender and Enforcement action on Secured Asset.
It is always advisable to talk to MSME Debt Settlement expert to understand your options before you waste any more time.If you receive notice from your Bank and want to know what law says. Talk to Advocate BK Singh.
Quick Facts About MSME Loan Settlement
- Loan Default: If you fail to pay the installments as per your contract you may incur charges and collection activity may begin.
- One time settlement (OTS): OTS is something that can be done with lenders approval it is not mandatory that the bank will give you a ots.
- Restructure: You can apply for restructure if you meet certain criteria set by the bank or government.
- Sarfaesi Notice: You have 60 days under section 13(2) of sarfaesi to make payment if your loan qualifies.
- If you settle with the bank your chances of getting a loan again in future may be affected and your account status will remain closed in credit information bureau.
- Make sure to get the terms of settlement in writing from the bank before paying any amount.
What Is an MSME Loan Settlement Agency?
MSME loan settlement agency works as an independent loan assistance agency for the borrower who has problem paying back his loan. They will study your case and help you make settlements with your bank/NBFC.
They are not your authorised lawyer by default. And can't ask any lender to forgive your loan.
They can help you in settling your defaulted business term loan. Machinery Loan. Working capital. Cash Credit & OD etc
For further information about the service, see MSME Loan Settlement.
Settlement and restructuring are different
One Time Settlement (OTS) usually refers to closing off a loan at a set price and terms may include concessions on money payable.
A restructuring would allow for a longer term to pay back or reduce instalments on a approved structure.
If you have a going concern and will have future cash flow then maybe look at a restructuring before taking the hit on your credit from a compromise.
This all depends on how profitable your business is what assets you have if there are any guarantors and if you need to borrow money in the future and how much you have to settle.
BK Singh can assist you if there are any legalities involved with loan documents or security's that need further looked at.
Which Laws Govern MSME Loan Default and Recovery?
Loan recovery from business in india can be as per the agreement or it can be done under rbi norms. Debt recovery acts and laws relating to secured lending.
SARFAESI Act, 2002
The Sarfaesi Act 2002 allows a secured creditor who is a eligible secured creditor to take action as provided in this act.
As per section 13(2) if a secured creditor who is an eligible secured creditor can give a notice to pay the amount due within 60 days.
Once such steps are taken under section 13(4) the debtor can file a petition before the Debt Recovery Tribunal under section 17. Usually within 45 days of steps taken by the bank.
Every MSME loan will not fall under the purview of Sarfaesi. It depends on the lender and type of security etc.
If you have received a SARFAESI communication, you can review the relevant SARFAESI notice reply assistance information.
Recovery of Debts and Bankruptcy Act, 1993
The bank or financial institution can file a case against you in the debts recovery tribunal as per the provision in Recovery of Debts and Bankruptcy Act 1993.
Just because you have received a DRT Notice does not mean you can negotiate with the bank and your case will not proceed.
For information about tribunal-related borrower assistance, see DRT Case Support.
RBI rules on recovery conduct
As per rbi guidelines the loan provider cannot do any sort of threatening and harassing activity during the collection process.
Customer can file a complaint with the concerned bank via their internal complaint redressal system and if the customer falls under the scope he can also use the ombudsman for RBI. The above won't make the liability nil if you have committed wrong conduct in collection.
If your company has received a notice regarding Possession of asset/ Recall letter /DRT you can contact Advocate BK Singh for legal advice on the said notice and further proceedings.
Who Should Consider MSME Loan Settlement Assistance?
They do not all require settlements. They could be able to survive by amending the repayment or some temporary financial help.
If your business is unable to repay what was previously agreed to then you may require Settlement Help.
Some examples would be if your business is experiencing low turnover. Slow receivable form customers. Broken equipment or taking losses and have more than one facility that is in default.
Partnerships can fall into this category as well if there is a dispute amongst the partners to put more money into the business.
Directors of companies who have given personal guarantees for that companys debts may also require advice. Depending on the guarantee and legislation.
These types of scenarios may require you to speak to Advocate BK Singh about the laws around Guarantors and look at what your business can settle for. You can also read about guarantor bank recovery notices and legal liability.
How Can an MSME Loan Settlement Agency Help Businesses in Default?
Knowing what you are trying to settle with is key to finding a good settlement company. It shouldnt just ask you how much you can pay right now.
1. Review the outstanding loan
Review the Sanction letter loan agreement, account statement and payments made along with any communication from lender.
Determine what is owed. Principal, interest as per contract and any other charges or dispute amount if any.
2. Assess actual financial hardship
If you can back it up with your businesses current standing it will look better for an msme settlement.They may require gst returns. Sales and any unpaid invoices. As well as bank statements that are up to date.
If you have recently lost income but have plenty of customers ordering from you. It could benefit you to offer a payment plan instead of a settlement.
Documents Required for MSME Loan Settlement
Its better to have proof of your finances then just explaining why you lost money on your business.
Ideally these are the documents that borrowers should have:
- Sanction letter, loan agreement and recent loan account statement.
- Udyam cert, GST cert and other registrations pertaining to business.
- Business account statements, financials and GST filings.
- Any receivables from customers and business debt.
- EMI payment proofs and acknowledgement and any letters of settlement.
- Demand letters from bank, recoveries and legal notices.
- Securities held against loan and guarantees if applicable.
- Proof of financial distress i.e fall in sale or closure of business.
There can be more documents that will be required as per lender and loan product.
If there is a disputed demand or securities in place Advocate BK Singh can help with reviewing documents.
How Long Does MSME Loan Settlement Take?
There is no law which states that the lender should respond to your OTS within x number of days.
Depending on the case some proposals can get approved sooner but you may have to go through internal approvals, property valuation, newer financials etc.The difference between a negotiation period and a response period is key here.
Just because you have sent in a settlement request does not mean that the response period as per the statute will not apply or you wont have to worry about an on going recovery process.
If you are negotiating with your secured creditor remember to keep an eye on the SARFAESI timelines.If you have received an urgent notice feel free to reach out to Advocate BK Singh for help on timelines and what options you have.
What Happens If an MSME Ignores Loan Default?
Not paying back loans can have serious ramifications for your business.
You could face penalties from contracts. Your lenders may call in facilities and attempt to recover monies due by law or approach the security provided.Business may also find itself unable to obtain further working capital facilities due to negative credit bureau reports.
Suppliers if they become aware that the business is in distress may require prepayment. Which will cause further cash flow issues. Depending on whether you are running as a sole proprietor, partnership or company. You may be affected differently.
Consult Advocate BK Singh if you have been served with recovery proceedings in Court/Tribunal.
If the issue involves an auction notice, you may also review whether settlement can stop a bank auction after loan default.
When Should an MSME Consult a Loan Settlement Lawyer?
If the loan default issue falls under contract disputes, notices as per law, threat of possession, guarantor or court case then business must seek qualified legal opinion.
Especially if notice has been served by lender u/SARFAESI act or DRT proceeding initiated. Or any kind of legal dispute regarding mortgage on business asset.Loan settlement and Advocate services are two different things.
You can hire an agency which can help you gather documents and make a commercial proposal. But a good advocate will guide you about what rights you have under law and what steps can be taken in Court.
Advocate BK Singh can be contacted for the same while you look into repayment / settlement possibilities.
How Can Loan Settlement Agency Help MSME Owners?
Loan Settlement Agency is a third party borrower help service for companies who are unable to pay back their dues.
Some of its services that it offers are Loan Account Analysis. Hardship situation. Help with OTS proposal. Requesting Restructuring. Notices and help on recovery harassment. They provide a Loan Settlement Service for Business. This could be there Term Loan, Machine Loan, Cash Credit / OD or any other loan availed from MSME sector.
Loan Settlement Agency does not work under any Bank/NBFC. So they can not ensure you will get waiver. Stop the process or ask your bank to accept your offer.You may need to consult Advocate BK Singh for further legal assistance if needed.
Frequently Asked Questions
1. How does MSME Loan Settlement Agency help you?
MSME Loan Settlement Agency can help you calculate your outstandings and talk to lender regarding One Time Settlement. They will let you know about all possible options that are available to you to repay your loan.
2. Can I get One Time Settlement (OTS) on my MSME loan?
You can ask your bank/NBFC to provide OTS on your MSME loan. Whether they will provide you OTS or not depends upon various factors such as outstandings, history and current status of your business.
3. What if I don't pay my MSME loan?
If you are unable to pay your loan there could be many implications. Your interest can increase due to overdue EMI, you can receive poor credit score. Lender may also take legal action against you. If its a secured loan they can also take action on your mortgaged properties.
4. Will MSME Loan Settlement Agency help me avoid action by bank?
They can help you settle your loan and communicate with your lender. However there is no law that says that your loan will be free from action by bank.
5. What are the documents needed for MSME Loan Settlement?
Loan papers, bank statement, loan details, gst return and business related papers. Any document that can prove that you are going through tough times financially.
6. Will my loan be reduced if I go for settlement?
Your bank may provide you a lesser amount to close your loan if they see fit. This all depends upon your situation and banks policy. There is no set figure at which they will reduce your loan.
7. Will I lose points on my CIBIL score?
If you go for one time settlement on your loan and pay less than the amount your bank has asked you to pay you may end up losing points. Which can hinder your chance of getting future loans.
8. How long does it take to settle a MSME loan in India?
There is no fixed amount of time it can take to get your loan settled. It depends on the bank and the amount you owe them.
9. Can I settle my MSME loan if it's secured or unsecured?
Yes you can. However keep in mind that if you have given security to your bank. They can still take action on that property.
10. When should I contact MSME Loan Settlement Agency?
If you find that you are not able to pay your EMIs and are facing trouble you should reach out to us. We will help you know what options are available to you.
Final Thoughts
If you find yourself in this situation you can approach an MSME Loan Settlement Agency they will assist you in bringing your finances in order. They can liaise with your lenders and look at options that you have available.
This is where a good assessment of your finances will come into play. Having correct documentation and knowledge of what is best for you.
Depending on your circumstances you may be able to restructure your loan and keep your business going. You may also want to settle with your lender and accept the implications on your asset's and any guarantees you may have.
Getting help as soon as possible will only benefit you. Especially if you have received notices from your lenders or law firms.
Advocate BK Singh can also be approached if there is any legal issues regarding recovery or your secured asset's and any contracts you have signed.