In India, NPA is a major challenge for borrowers as well as banks. An NPA account is a nightmare for businesses, as it creates issues in running their business, and makes them unable to secure fresh funding from the traditional banks & lenders. So, coming out of a stressful situation of NPA becomes difficult as borrower neither gets finance to close the NPA account nor, they get funding for business.
But, NPA Funding provides a second chance in resolving stressed accounts & regain financial stability by reviving the business. It plays a crucial role for businesses with distressed loans, which are unable to get traditional financing.
What is NPA Funding?
NPA Funding refers to the financial support or loans provided to NPA borrowers to close their stressed accounts. It may be provided through private NBFC, HNI’s & private lenders. The objective is to close the stressed accounts, revive the businesses & improve financial stability.
It is Useful for:
- NPA Account borrowers
- To pay One-Time Settlement (OTS)
- Low CIBIL Cases
- Builders having stalled projects
- Companies with a low CMR rating
- Clients having cases running in DRT & NCLT
- Businesses looking for financial restructuring
How Does it Work?
Getting funds for NPA could be a tough process that requires a high degree of professionalism & a practical approach to solutions. Only a seasoned professional from the finance industry can manage it well.
However, it involves the four major steps:
Assessment of the borrower’s profile
It includes evaluating the total outstanding NPA, the value of underlying securities & current business or income to verify repayment capacity. A repayment through current business or income through the sale of collateral is also considered.
Deciding Loan Terms
On the basis of the above information, the lender can decide the loan amount, tenor & ROI applicable for the transaction. For all this, a proper sanction letter is issued to the borrower.
Disbursement
Once the borrower accepts the lender’s sanction letter, then a process of disbursement will be started, which includes the signing of the loan agreement, payment to the bank & transfer of all collateral to the new lender.
Business Revival Fund (Applicable only in Specific Cases)
Once all the collateral securities are transferred to the new lender, funding for business revival is released, which can be utilised for the development of the business. This can be used to pay vendors, purchase raw material, or towards the bank guarantee.
Benefits & Key Features
- Funding for every kind of distressed loans
- Post-NPA funding is also available
- Fast approval for management of situations
- Funds available in all of India
- Loans starting from Rs.1 Crore
- Loan to pay the One-Time Settlement
Important Points to Remember
Before opting for NPA funding:
- Compare interest rates from different lenders
- Understand the lender’s policy carefully
- Give priority to closing the stressed loans first
- Evaluate your monthly repayment capacity properly
Conclusion
NPA funding can be a business-saver financing that offers funds to close NPA accounts & other distressed loans. It helps stressed-out companies in managing their bad loans and reviving businesses. It also offers working capital support for low CMR & poor CIBIL rating cases.