Things to Know about Business Loan Transfer

For every business, profits come later, but having adequate cash flow is quite important from day one. This is why business owners apply for business financing to maintain cash flow and achieve business objectives. Indian lenders sanctioned ₹2.74 crore MSME loans of ₹54.2 lakh crore alone in FY24. Many of these owners, however, seek business loan transfers due to high interest rate and inflexible tenure.

Business loan interest rate directly impacts the cash flow as higher interest rates mean bigger EMIs. It is how high-interest business loans or inflexible repayment terms make businesses suffer. A business loan transfer allows you to switch to different lenders to profit from lower interest rates and repayment flexibility. Know what business loan refinancing, loan transfer process and benefits.

What is Business Loan Transfer?

Business loan refinancing or loan transfer meaning refers to a process businesses use to switch to another lender with low interest rates and flexible returns to reduce debt load and increase working capital. Suppose you have to take a business loan from SBI or ICICI with a high interest rate. You can transfer this loan to HDFC or other lenders who are offering low interest loans.

The main objective of loan transfer is to help businesses get better loan terms. Terms such as lower interest rates, an extended repayment period, or even improved customer service and support. In other words, the loan transfer is replacing your current loan agreement with a new one that is beneficial for the business. You will continue to pay the EMIs, but now under revised terms.

Common Reasons Businesses Consider Business Loan Transfer

• Lower Interest Rate: Many businesses choose loan transfer to reduce their financial stress. A low interest rate helps you improve cash flow if your current EMI is affecting the profits.
• Better Loan Terms: Loan refinancing helps you get better loan terms like longer terms, lower EMIs, or flexible payment plans that fit the cash flows of businesses.
• Top-Up Loans: Businesses opt for a loan transfer when the new lender offers a top-up loan often at competitive rates.
• Fixed Rates or Floating Rates: Loan transfers provide businesses a chance to switch from fixed rates to floating rates and vice versa.
• Better Customer Service: Businesses choose to move lenders for better service quality, digital loan administration, quicker inquiry answers, or more user-friendly platforms.

Transfer of business loans is popular among small businesses, MSMEs and startups. These types of businesses initially borrow at high interest rates because of their limited credit history or lack of collateral. Once they meet the business objective and start to feel financial stress from high EMIs, they switch the plan once their credit profile improves.

Why Should You Consider Transferring Your Business Loan?

Money is at the heart of everything you do within your business. When it comes to money, you have inventory to buy, vendors to pay, salaries to reimburse, machinery to purchase and many more expenses. If more money goes into paying EMIs, you struggle with cash flow.

Effective cash flow practices are crucial since, globally, 82% of business failures occur due to inadequate cash flow management. One of the key loan transfer advantages is that it helps improve cash flow by reducing your EMIs. The benefits of business loan transfer, however, go well beyond just low interest rates.

1. Lower Interest Rates

Business loan interest rates decide the EMI you will pay. Suppose you are taking a business loan of ₹10 lakh for 2 years. At 12% interest rate, your EMI will be ₹47,073. For the same principal amount and tenure, the EMI will be ₹48,487 for an interest rate of 15%. You are not just paying more EMI but also interest. One of the key reasons to transfer business loans is lowering interest rates.

2. Better Loan Terms

Business loan refinancing allows you to structure your repayment schedule. You can choose a longer tenure to adapt to your revenue cycle. It helps you ease financial pressure, especially during slow business periods. With better terms, budgeting becomes much easier.

3. Improved Cash Flow

Transferring a loan with high monthly EMIs to one with lower rates enhances cash flow. Reduced EMIs help reduce the outflows and put more working capital in hand. This can be reinvested into hiring, marketing, or inventory. Better cash flow improves day-to-day business operations.

4. Enhanced Customer Service

Poor responsiveness, delays and lack of clear communication are some of the biggest customer service issues that businesses face when they apply for business financing. This is why they switch lenders for better support and digital services. A different lender offers quicker query resolution that saves time and avoids unnecessary delays.

5. Loan Consolidation

If you’re managing multiple loans, refinancing helps merge them into one. This makes tracking, budgeting, and repayment a lot easier. Combining also helps reduce interest rates and simplifies paperwork. It helps you stay financially organised while cutting down on unnecessary charges.

How Does the Business Loan Transfer Process Work?

Although loan transfers simply work by transferring a business loan from one lender to another, the steps are a crucial part of the business loan transfer process. Here is how to transfer business loan step by step:

Step 1: Evaluate Your Current Loan

One of the most important but emphasised steps for loan transfer is evaluating your current business loan, terms, tenure and interest rate. You must check the prepayment penalties to ensure that repayment doesn’t cost you more. Check and analyse if a loan transfer will benefit you monetarily.

Step 2: Find a Suitable Lender

As the business loan agreement with your existing lender is not working in your favor, you must consider choosing the right lender. Research banks, NBFCs and digital lenders that offer debt refinancing options. Compare each option based on interest rates, repayment flexibility, and processing time.

3. Check Eligibility

Before applying, read through the new lender’s eligibility criteria. Most lenders will review your credit score, financial stability, business turnover, and repayment history. Ensure that you meet eligibility criteria, like minimum loan transfer amount, business vintage, revenue and documents.

Step 4: Submit Application

Once you’ve selected a lender, fill out their loan transfer application. You’ll need to submit documents such as audited financials, GST returns, bank statements, KYC details, and the current loan agreement.

5. Approval and Transfer

After reviewing your refinancing application, the lender will verify the details and approve the transfer. They will pay off your existing loan and issue a new loan agreement under the revised terms.

Look out for Hidden Charges and Penalties

Before finalising a loan transfer, go through all costs beyond interest rates, including processing fees and prepayment penalties. This saves you from hidden charges and costs. You can also request a detailed breakdown of fees from the new lender and clarify any unclear terms.

Eligibility Criteria for Business Loan Transfer

It is important to check the business loan transfer eligibility set by most lenders before starting with the transfer process. These business loan requirements help assess your repayment capacity and financial credibility:

• Existing Active Business Loan: The applicant must have an active business loan with a minimum track record of 12 months of repayments.
• Outstanding Loan Amount: Some lenders have a set range of loan amounts. Check whether your current outstanding loan fits the new lender’s transfer criteria, which range between ₹5 lakh to ₹50 lakh.
• Good Credit Score: A strong and healthy credit score is the first thing any lender considers, as it shows you can manage debt responsibly. A score of 700+ is the least required for smooth approval.
• Stable Financial Health: Your business must show consistent cash flow, a positive profit, and a clean balance sheet. This reassures the new lender about your repayment capacity.
• Repayment History: A clean repayment record is important. Missed or delayed EMI payments on your current loan may reduce your chances of approval for a loan transfer.
• Collateral Requirements: Some lenders may not, but others may ask for collateral, especially in cases of high-value loan transfers. You can consider assets like property or machinery, depending on the lender’s policy.

Meeting these basic business loan requirements ensures a smoother transfer process. Check with your preferred lender for additional conditions based on your business type or sector. Prior check improves your chances of securing better loan terms with minimal delays. You must also know that repayment has a significant impact on your credit score.

Benefits of Transferring Your Business Loan to Another Bank

From better terms to simplified loan management, there are many benefits of transferring business loans to another bank. Here are the top transfer loan benefits you must know:

1. Better Loan Terms

Businesses choose to transfer their loans to secure better terms. By transferring your business loan, you can enjoy lower interest rates or longer repayment schedules. These benefits can reduce your monthly payments and overall financial costs, making it easier to budget effectively.

2. Improved Relationship with the Lender

A new bank can offer a fresh start in terms of customer service and support. Banks, which are more responsive to their businesses and provide personalised service, develop a stronger relationship. This can be beneficial if the current lender has been difficult to work with or lacks the flexibility you need.

3. Simplified Loan Management

If you have multiple loans, transferring them to a single lender eases financial management. Combining loans with one bank helps with the repayment process and reduces the number of transactions. This saves time and ensures that all repayments are made on time.

Business Loan Transfer Interest Rates from Banks and NBFCs

Bank/Lender	Interest Rate	Loan Tenure
ICICI Bank	Up to 17.00% pa	Up to 7 years
HDFC Bank	11.90% to 21.35% pa	12 months to 48 months
Kotak Mahindra Bank	16% – 19.99% pa	24 months to 5 years
IndusInd Bank	13.00% – 22.00% pa	12 months to 5 years
Axis Bank	Starting at 17% pa	12 months to 5 years
State Bank of India	11.20% pa onwards	12 months to 48 months
Bank of Baroda	14.10% pa onwards	12 months to 36 months
Indian Overseas Bank	10.80% pa	12 months to 5 years
FlexiLoans	12% pa onwards	12 months to 36 months
HDB Financial Services	16.75% pa onwards	12 months to 4 years
India Infoline	1.5% to 2.5% per month	12 to 36 Months
Tata Capital	19% onwards	Up to 36 months
Aditya Birla Finance Limited	14% onwards	12 months to 3 years

Things to Consider Before Transferring Your Business Loan

Transferring a loan has its advantages, but it’s important to know the factors to consider before a loan transfer. Knowing things like foreclosure charges, new interest rates, and documentation requirements can prevent your application from rejection or delay. Here are the things to know before a loan transfer:

• Interest Rate Difference: Look for significantly lower interest rates as it impacts the EMI, cash flow and repayment. Make sure the total cost of the loan, including the fees and other charges, actually helps with cost-cutting.
• Processing Fees and Charges: Some lenders impose hefty processing fees, prepayment penalties, or charges that nullify the lower interest rates. Be sure to ask for a complete breakdown of all associated fees.
• Loan Tenure: An extended loan tenure can reduce monthly repayments, but it can also increase the total interest paid throughout. Before considering a lender, calculate how the extended loan term will affect your long-term financial growth.
• Impact on Credit Score: The loan transfer process can impact your CIBIL score if there are delays or missed payments during the transition. Ensure that your current lender has closed off your loan before starting the transfer to avoid any negative impact on your credit score.
• Flexibility in Terms: Check for flexible loan terms, such as options for early repayment without penalties or a convenient repayment schedule. It helps improve cash flow management.
• Read the Terms & Consult Financial Experts: The business loan terms matter. Review the terms carefully, and seek advice from a financial expert or consultant.

One of the most significant business loan transfer tips that you must follow is ensuring that business loan refinancing helps you save money rather than burden you more.

Common Mistakes to Avoid When Transferring a Business Loan

Here are the most common loan transfer mistakes that people make and that you should be mindful of before applying for a business loan transfer:

• Ignoring Fees: Businesses focus only on the lower interest rate and miss the added charges. Processing fees, prepayment penalties, and hidden charges can increase the overall cost of the loan. You must take all costs into account to determine if it benefits your business.
• Not Comparing Multiple Lenders: While researching for lenders, do not settle for the first loan transfer offer and miss out on a better deal. Compare banks and NBFCs to find the best terms that suit your business’s needs.
• Overlooking Long-Term Implications: A lower monthly repayment seems appealing, but extending the loan tenure can lead to higher interest payments for the entire tenure. Weigh how the new loan’s terms will affect your financial situation over time.
• Not Consulting Financial Experts: Take advice from a financial expert, as it may lead to poor decision-making. Financial experts can assist you in navigating the complexities of loan refinancing.

Conclusion

For businesses looking to strengthen their financial position, a business loan transfer is a calculated decision. The favourable influence on cash flow is among the most noticeable and immediate advantages of loan transfers. Choose the right lender, lower interest rates, better loan terms, and improved repayment flexibility to reap the full benefits of loan transfer.

Check your eligibility for a business loan transfer today and explore your options for better terms and lower interest rates. If you’re not sure, our expert financial advisors at FlexiLoans are here to help. Apply for your business loan transfer now for your business needs and secure a better deal for your business today!

FAQs about Business Loan Transfer

Q.1 Does transferring a business loan affect credit score?

Ans: A business loan transfer itself doesn’t hurt, but missing payments before or after can impact your score.

Q.2 What documents are needed for a business loan transfer?

Ans: You typically need identity proof, financial statements, loan documents, and a NOC from your current lender.

Q.3 How long does the loan transfer process take?

Ans: It can take anywhere from a few days to a few weeks, depending on lender requirements. 

Q.4 Are all loans eligible for balance transfer?

Ans: Not always, as there are minimum amount criteria, but some lenders have restrictions based on loan type, tenure, and borrower profile.

Q.5 Can I transfer a partially paid business loan?

Ans: Yes, but ensure there are no restrictions or penalties from your current lender.