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Tata Capital > Blog > Loan for Business > How to Modify or Restructure Your Business Loan

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How to Modify or Restructure Your Business Loan

How to Modify or Restructure Your Business Loan

Managing a business is no easy task. Especially considering how volatile and dynamic the business world is. Through the ups and downs of this competitive space, business owners often have to rely on business loans to bridge financial gaps and help meet productivity goals.

However, certain issues might arise. For instance, during the pandemic, businesses suffered setbacks that prevented them from meeting their profit goals. This was followed by default in business loan repayments.

To help with this, the Reserve Bank of India (RBI) introduced the Business Loan Modification India scheme. Under this, the RBI laid down guidelines for loan restructuring so as to help businesses cope with paying their loan amidst financial difficulty.

Modifying your business loan reduces your financial burden and helps restructure your EMIs to facilitate a more comfortable loan repayment schedule.

As you read on, you will gain more insight into business loan modifications, their advantages, and how to apply for them.

What is business loan modification?

A business loan modification is a process whereby the lender re-adjusts the loan terms to suit the business’s present financial condition. Thus helping businesses repay the loan more comfortably. It is also known as business loan restructuring.

If a business is not earning enough profits to repay its debt or when a lender decides to increase the interest rate due to situations such as inflation, loan restructuring is one of the best ways to cushion the effect.

During business loan modification, the lender works with the borrower to achieve a mutually beneficial result. The lender can agree to lower the interest rate or extend the loan duration as a means of helping the borrower avoid default.

How to modify a business loan

Here is a step-by-step guide on how to restructure a business loan.

1. Inform your lender

Contact your lender and inform them of your intention to restructure. The lender will guide you with what you need to know and the documents needed to proceed.

2. Provide the necessary documents

Gather the documents you need to complete the loan restructuring application form. Such documents include identity proof, income proof, financial statements, and cash flow documentation.

3. Draft a formal letter

Depending on your lender’s loan restructuring process, you might have to write a letter explaining why you need loan restructuring, with details on the business's present financial condition.

4. Submit your proposal

Draft a proposal that explains your ideal restructured business loan. This can be a decrease in the interest rate, an extension of repayment terms, or a reduction in the monthly payment.

5. Negotiate with your lender

Negotiating with your lender is inevitable. They are likely to have their terms or modifications to your proposed plan. Hear them out and try to arrive at a conclusion that suits both of you.

6. Write an agreement

Once the terms of the restructuring have been finalised, you and the lender are to submit a written agreement containing the new terms and conditions of the loan.

7. Formalize the agreement

The two parties are expected to sign the agreement, which lays down the new loan terms. This will serve as a formal document confirming the restructuring of the business loan.

Advantages of business loan restructure or modification

There are several benefits of business loan modifications. These include,

1. Prevent Default

The new terms and conditions of the restructured business loan, such as a lower interest rate and an extended repayment period, can help increase the business’s chance of paying off the loan and prevent default.

2. Relief of financial commitment

Business loan restructuring can lead to financial relief and help businesses streamline their financial obligations better.

3. Improves the cash flow

A lower monthly payment or an extended loan tenure can boost cash flow, allowing the business to use funds to meet other financial obligations. The funds saved on the lower EMIs can be allocated to other requirements.

4. Strengthens the relationship between the business and the lender

When borrowers apply for business loan restructuring, it helps convince the lender of their good intentions. This is because, by applying for a loan modification, business owners are trying to prevent a loan default and making an effort to repay the loan.


When a business finds it difficult to settle its loan payment and is at risk of defaulting, restructuring the terms and conditions of the loan can be a saving grace.

Changes to the terms and conditions of the loan, such as lower interest rates and extended repayment tenure, can relieve the business of its financial burden and offer it increased financial flexibility.

To restructure your business loan, contact your lender and provide the necessary documents.  Also, include a proposal highlighting the changes you want in the terms and conditions, and negotiate on the proposed modifications.

Once an agreement is reached, draft a contract and finalise it with your signature.

Tata Capital is one of the leading financial institutions in India where you can obtain business loans at competitive rates and flexible loan terms.

Apply today to obtain the needed funds to grow your business.


1. What is a business loan modification? 

A business loan modification is the process of making changes to the terms and conditions of the loan to adjust it to the business's current financial status. Thus helping the business repay the loan more comfortably.

2. What is business loan restructuring?

Business loan restructuring is the same as a business loan modification. It refers to the process of making changes to the terms of a business loan to help it suit the business’s current financial condition and prevent default.

3. Who is eligible for a business loan modification or restructuring?

Business loan modification or restructuring depends on several factors, such as the business's financial status, the lender's policies, and the type of loan.

A business becomes eligible for loan modification when it's undergoing financial downtimes, at risk of making a loan default, or when there is a change in business conditions.

4. What are the benefits of business loan modification or restructuring?

There are several benefits of business loan modification has to offer to a business. It helps:

a. Relieve financial burden

b. Provide financial flexibility

c. Prevent businesses from defaulting on the loan

d. Strengthen the business’s relationship with the lender

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