As more lenders digitize and begin offering their borrowers the option to automatically pay their EMIs using the NACH (National Automated Clearing House) service, paying a business loan EMI using a cheque is becoming less common.
Despite using NACH, when you get a business loan from a formal lender, you will still need to give the lender a few EMI payment cheques in case the automatic pull fails. Here are the steps to writing a cheque to make a business loan EMI payment.
How do I write a cheque to make a business loan EMI payment?
A cheque used to make a loan EMI payment is similar to a cheque used to make any other payment. The only difference is you would make this cheque out to your business loan lender instead of an individual. Here are the steps to follow:
Step 1: Fill in the date the EMI is due in the DD/MM/YYYY format.
Step 2: Write the name of the Payee. Here, you will write the legal name of your lender. For example, if you borrow from Bajaj Finserv the Payee will be “Bajaj Finserv Ltd.”
Step 3: Enter the EMI amount to pay in numbers and add “/-“ at the end to ensure no one can add any extra digits after the value you have written.
Step 4: Write the EMI amount value in words, followed by “Only”.
Step 5: If there is any blank space left where you can write more words, cut that space out with a line so that no one can write anything else on the cheque.
Step 6: Sign the cheque.
Step 7: Next to the payee’s name, make two small diagonal lines. These lines indicate to the bank that this cheque is intended to make a transfer from one bank account to another and cannot be used to withdraw the EMI amount.
You have now successfully written your business loan EMI cheque. Good job!
Here are some hygiene tips to follow to ensure your cheque clears successfully and you are not late on your EMI payments. Repeated delays in EMI payment could negatively affect your credit score and your future business loan prospects.
- Remember to write the correct date on the cheque.
- Always add “/-“ after the cheque amount (in digits).
- The cheque amounts in words must always match the cheque amount in digits.
- Ensure your signature matches the signature on file.
- Don’t forget to add the two small lines next to the Payee’s name to make the EMI deposit.
In addition to the EMI cheques, the lender will also ask you to submit a cancelled cheque when they sanction your loan.
Learn how to cancel a cheque and what use it has.
Why does my lender need EMI cheques when I have decided to pay the business loan EMIs using NACH?
When you get a business loan from a formal lender, you are asked to give the lender a few cheques. These may be for the following values:
- 2 cheques may be of the full business loan amount
- 1-2 cheques of an EMI value
All these cheques need to be signed, but they must not have a date on them.
Lenders ask for these cheques for the following reasons:
- It takes some time for the NACH request to be activated (or reactivated). In case it is not set up by the time your first EMI instalment is due, the lender will use one of the cheques to clear your EMI dues.
- Since NACH is an online service, there are times when errors may occur in the system or the system may be down for maintenance. To ensure your EMI payment is made on time the lender may use the cheque to clear your EMI dues.
- Finally, if a borrower defaults on a loan, the lender may use the full loan amount cheques to recover their dues. So, these cheques act as a safety net for the lender.
What happens if I default on a business loan?
When you skip 3 or more EMI payments in succession, it is considered a default on your loan. Defaulting on a business loan will cost you money, as you are charged a penalty fee every time the lender tries to make an EMI withdrawal and is unsuccessful, and it also impacts your future loan prospects as it brings down your credit score.
Your EMI payments get recorded in 3 places:
- The statement of the bank account from which the EMI payment is made.
- Your business loan account statement.
- Your bureau reports.
When you apply for a business loan, you need to submit the bank account statements for the last 12 months for all accounts you use for your business. If you miss an EMI payment or the NACH was unsuccessful for whatever reason, it is recorded to your bank account statement, and the lender will see this.
Additionally, lenders also review your bureau report when you apply for a business loan, and any missed EMI payments will be recorded there. A low credit score combined with the default will make you a riskier borrower for the lender, thereby reducing your chances of getting the business loan you need.
Learn more about the consequences of defaulting on a business loan here.
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