NPA Funding by NBFC is rescue financing for companies & individuals whose loan accounts are classified as non-performing assets and are trapped in legal & financial issues.
Under RBI policy & complex financial structure, banks cannot fund an NPA account holder. But NBFCs have a simpler business model focused only on financing and are able to manage their financing portfolio independently. It gives an advantage of financing a wide profile, including the NPA (Non-Performing Assets).
NBFC can fund an NPA account borrower by taking over the NPA account, paying the previous bank directly, and all collateral securities to the NBFC as a new lender. The borrower will be provided ample repayment time through monthly EMI. Through this NBFC funding, the borrower can close their NPA loan and strengthen their business by raising additional funds for working capital.
Advantages of Taking NPA Funding by NBFC Companies:
- Direct payoff to the previous lender
- Legal takeover of NPA account
- Option of additional funds for working capital
- Financial liability relief through moratorium period
- Repayment in equated monthly installments (EMI)
- Helps in revival of credit score
- Companies with a high CMR rating can also apply for funding
- Also, direct transfer of collateral property to NBFC
- Available for real estate builders & developers
What Is NPA Funding by NBFC?
NPA funding refers to financing provided to borrowers whose existing bank or financial institution loan has become stressed or classified as a Non-Performing Asset.
In a normal loan transaction, the lender primarily evaluates the borrower’s repayment history and credit profile. However, NPA funding works somewhat differently. The lender may focus more heavily on the overall strength of the proposal, the value of available security, the underlying business or project, the settlement requirement, and the borrower’s ability to repay the proposed funding.
NPA Funding by NBFC can be used for purposes such as:
- Settlement of outstanding bank dues
- One-time Settlement (OTS) requirements
- NPA loan takeover
- Refinancing of stressed loans
- Project completion or last-mile funding
- Working capital requirements
- Business revival
- Debt restructuring support
- Additional funding against available property or assets
The exact structure depends on the borrower’s financial position, security, outstanding loan, project status, and the lender’s credit policy.
Funding Solutions offered by NBFC Companies to Manage NPA Accounts & Regain Financial Stability
- NPA Account Takeover: NBFC companies can take over the existing NPA loan liability of a borrower and provide a new repayment tenor. A moratorium is also provided for immediate relief from financial liability.
- Loan for Paying OTS: One can obtain a loan to fulfill his OTS (One-Time Settlement) commitment. Generally, 20% of the OTS amount needs to be invested by the client and the balance 80% can be financed through the NBFC.
- Working Capital for NPA Accounts: Every business requires working capital for business. NPA does not mean that funds are not required, but NPA restricts fundraising from traditional banks. So, NBFC companies help such borrowers by providing working capital loans to increase their business operations.
- Loan for Poor/Low Credit Score: These days, getting a loan with a poor credit score is very hard.
But NBFC can provide loans to such low-score borrowers.
Why does an NBFC offer loans to NPA Accounts?
NBFC companies offer finance to NPA account borrowers for the following reasons:
- High Interest Rate: NBFC companies charge higher interest rates to NPA borrowers. They take advantage of making good profits through high interest rates & processing fees from borrowers whose loan applications are denied by traditional lenders.
- High Collateral Value: NBFC require high collateral value for giving loans to such NPA or low credit score cases. This makes their loans much safer and secures successful recovery in case of default. Generally, they provide 50% or lower to the collateral valuations.
- Financially Secure Cases: For granting a loan to an NPA Account, they only rely on cases with a strong repayment plan, high collateral cover and past circumstances under which it was classified as NPA.