Business Loan after the death of the borrower

No one likes talking about death. But what if the earning member of the family dies and there are business loans that the family has to recover on their behalf. Who will be responsible for paying a business loan after the death of the borrower? What if you cannot cover the remaining amount? Let us read about everything in detail about who is responsible for paying and how the entire procedure works.

The death of the earning member of the family affects us emotionally first, but looking at all the debts, it affects us financially too. Informing the bank at the time of the happening might fetch you some extra time to repay the business loan after the death. Let us gain some knowledge about how to repay the business loan after the death of the borrower. 

What is a Business Loan?

A business loan is a borrowed amount of capital used for investment in the existing business or a new startup. Be it small or medium-sized enterprises or large companies; every business requires a loan. The repayment tenure for a business loan is 12 months to 60 months. 

Eligibility of the business loan:

• A business loan can be taken between the age group of 25-65 years.
• The business should be in running condition for the last three years.
• One year of filed Income tax returns for the applicant’s business is required.

Do you ever think about how to pay the remaining business loan after the death of the borrower?

As a borrower, a loan or debt is one of the enormous responsibilities a person has. On one side of the plate is the property, investments, while on the other side, there are loans, debts, and specific other responsibilities. In between all of this, you have no clue whether you have one more day or not. In general, we don’t talk about deaths, but being practical, one should think about it. Life is uncertain. A person can die even in their 30s and also be alive when they are in their 90s. 

Who is responsible for repaying the business loan after the death of the borrower?

If there is no loan insurance taken, then the responsibility for paying the loan is passed on to the co-applicant if there is a joint account or to the guarantor, if there is any. In the absence of these two, the responsibility passes on to the legal heir. In any of the previously mentioned cases, the bank creates a new loan contract in the name of the person who will pay the business loan. The person will be only liable for paying the loan if he/she is capable enough to pay, has a good credit score, and a proper financial situation. In the most extreme cases, if nothing from the above works, the bank would sell off the property and recover the left money and pay their shares in the profit to the heirs.

This is very important to keep in mind that the legal heirs of the property have no claim on the property till all the debts are covered. The banks understand and try to find a solution if the situation or the problem is genuine. After the borrower’s death, the family has to inform the bank about the situation and try to find a solution. The banks will take no aggressive steps if they are well informed about the situation.

It is to be kept in mind that gaining control over the property by the bank is the last option.

What if the legal heirs cannot pay the business loan after the death of the borrower?

If the legal heir agrees that he/she is incapable of paying the loan, then the bank has only one option left to repossess the property and sell it in the market to cover their dues. If the property is worth more than the left loan amount, the extra money would be passed over to the legal heirs. But if the worth is less and couldn’t cover the left debt amount, then the legal heir is responsible for covering the gap.

Repayment of the business loan after death of the borrower in case of secured and unsecured loans

A secured loan is taken for the vehicle, mortgage, secured credit cards, life insurances, etc. Now, a business loan can be both a secured as well as an unsecured loan.

What happens in the case of secured business loans?

Now, there might be two scenarios:

If the person already has named a guarantor or the co-borrower of the loan, then he/she is liable to pay the business loan after the death. But what if there isn’t any guarantor or co-borrower? In such a situation, the loan passes directly to the legal heirs of the deceased person. And, in case if the legal heirs couldn’t clear the business loan after the death, then the bank may take physical possession of the personal property like the house or the car and then sell them off to recover the dues.  

What happens in the case of Unsecured Business Loans?

An unsecured loan is a loan given to the borrower without taking or keeping any asset in return. In such cases, the loans are provided based on their creditworthiness. Examples of such loans are credit card loans. When compared to unsecured loans, secured loans are easier to pay. In cases of unsecured loans, the bank also reaches the legal heirs first. If it is a significant amount and the legal heirs are not capable enough to pay, then they are taken to court in case of default and file a civil suit. If the default is intentional, then the bank also gets an opportunity to file a criminal lawsuit. 

But, if the amount is small, then the bank does not take such significant steps. For example, if an unsecured loan is taken to buy a TV or an air conditioner, the bank has the right to possess that TV and sell it to recover the dues.

Business Loan After Death – FAQs

✅ What happens to the business loan after the death of the borrower?

After the death of the borrower, the business loan repayment will shift towards the applicant or grantor. If they cannot repay the loan, then the family members of borrowers should repay the loan. Otherwise, the bank will seize the property.

✅ Are Legal Heirs responsible for repaying the Business Loan?

Yes, legal heirs are responsible for the repayment of business loans. But if they are not in a position to repay the loan, then banks seize their property.

✅ How bank recovers the unsecured loans in case of the borrower’s death?

In the case of unsecured loans, if the borrower dies and if the family members are not able to repay the money, then banks approach the court. According to the court decision, the next step is taken.

✅ What happens if the borrower’s family members are not in a position to repay the business loan?

If the borrower’s family members cannot repay the loan, the bank may ask for a co-applicant or grantor. If they too can’t repay, then they seize the property of the borrower.

✅ Are grantors and co-applicants responsible for Business Loans?

Yes, grantors and co-applicants are responsible for business loans. But if they can’t repay, then the bank has the right to seize their property.

✅ What happens to the secured loans in case of the borrower’s death?

In the case of secured loans, banks may seize the property if no one repays the loan.

✅ What happens to the unsecured loans in case of the borrower’s death?

In the case of borrowers, death banks may go to court in unsecured loans as banks have no security with unsecured loans.

✅ What if legal heirs can’t repay the loan?

If legal heirs can’t repay the loan then banks may seize their property and sell them.