diff --git a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/service/LoanReadPlatformServiceImpl.java b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/service/LoanReadPlatformServiceImpl.java
index 09549592c..d9f15f469 100644
--- a/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/service/LoanReadPlatformServiceImpl.java
+++ b/fineract-provider/src/main/java/org/apache/fineract/portfolio/loanaccount/service/LoanReadPlatformServiceImpl.java
@@ -33,6 +33,7 @@ import java.util.HashMap;
 import java.util.List;
 import java.util.Locale;
 import java.util.Map;
+import java.util.Objects;
 import java.util.Optional;
 import lombok.AllArgsConstructor;
 import org.apache.commons.lang3.StringUtils;
@@ -601,7 +602,12 @@ public class LoanReadPlatformServiceImpl implements LoanReadPlatformService, Loa
 
     @Override
     public Long getLoanIdByLoanExternalId(String externalId) {
-        return loanRepositoryWrapper.findIdByExternalId(ExternalIdFactory.produce(externalId));
+        ExternalId loanExternalId = ExternalIdFactory.produce(externalId);
+        Long loanId = loanRepositoryWrapper.findIdByExternalId(loanExternalId);
+        if (Objects.isNull(loanId)) {
+            throw new LoanNotFoundException(loanExternalId);
+        }
+        return loanId;
     }
 
     private static final class LoanMapper implements RowMapper<LoanAccountData> {
diff --git a/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/ExternalAssetOwnerHelper.java b/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/ExternalAssetOwnerHelper.java
index 9c5f51b6e..2270f8f1c 100644
--- a/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/ExternalAssetOwnerHelper.java
+++ b/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/ExternalAssetOwnerHelper.java
@@ -40,6 +40,12 @@ public class ExternalAssetOwnerHelper extends IntegrationTest {
         return Utils.performServerPost(requestSpec, responseSpec, INITIATE_TRANSFER_URL, json);
     }
 
+    public String initiateTransferByLoanExternalId(String loanExternalId, String command, String json) {
+        final String INITIATE_TRANSFER_URL = "/fineract-provider/api/v1/external-asset-owners/transfers/loans/external-id/" + loanExternalId
+                + "?" + Utils.TENANT_IDENTIFIER + "&command=" + command;
+        return Utils.performServerPost(requestSpec, responseSpec, INITIATE_TRANSFER_URL, json);
+    }
+
     public String retrieveTransferByTransferExternalId(String transferExternalId) {
         final String RETRIEVE_TRANSFER_URL = "/fineract-provider/api/v1/external-asset-owners/transfers?" + Utils.TENANT_IDENTIFIER
                 + "&transferExternalId=" + transferExternalId;
diff --git a/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/InitiateExternalAssetOwnerTransferTest.java b/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/InitiateExternalAssetOwnerTransferTest.java
index 496715798..8887bb386 100644
--- a/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/InitiateExternalAssetOwnerTransferTest.java
+++ b/integration-tests/src/test/java/org/apache/fineract/integrationtests/investor/externalassetowner/InitiateExternalAssetOwnerTransferTest.java
@@ -56,6 +56,7 @@ public class InitiateExternalAssetOwnerTransferTest {
 
     private ResponseSpecification responseSpec;
     private ResponseSpecification responseSpecError;
+    private ResponseSpecification responseSpecNotFound;
     private RequestSpecification requestSpec;
     private ExternalAssetOwnerHelper externalAssetOwnerHelper;
     private LoanTransactionHelper loanTransactionHelper;
@@ -68,6 +69,7 @@ public class InitiateExternalAssetOwnerTransferTest {
         requestSpec.header("Authorization", "Basic " + Utils.loginIntoServerAndGetBase64EncodedAuthenticationKey());
         responseSpec = new ResponseSpecBuilder().expectStatusCode(200).build();
         responseSpecError = new ResponseSpecBuilder().expectStatusCode(403).build();
+        responseSpecNotFound = new ResponseSpecBuilder().expectStatusCode(404).build();
         externalAssetOwnerHelper = new ExternalAssetOwnerHelper(requestSpec, responseSpec);
         loanTransactionHelper = new LoanTransactionHelper(requestSpec, responseSpec);
 
@@ -312,6 +314,32 @@ public class InitiateExternalAssetOwnerTransferTest {
         }
     }
 
+    @Test
+    public void getNotFoundErrorIfTheLoanDoesNotExistWithTheGivenID() {
+        try {
+            GlobalConfigurationHelper.updateIsBusinessDateEnabled(requestSpec, responseSpec, Boolean.TRUE);
+
+            BusinessDateHelper.updateBusinessDate(requestSpec, responseSpec, BusinessDateType.BUSINESS_DATE, LocalDate.of(2020, 3, 2));
+            GlobalConfigurationHelper.updateValueForGlobalConfiguration(requestSpec, responseSpec, "10", "0");
+
+            externalAssetOwnerHelper = new ExternalAssetOwnerHelper(requestSpec, responseSpecNotFound);
+            String transferExternalId = "36efeb06-d835-48a1-99eb-09bd1d348c1e";
+            String nonExistingLoanExternalID = "NonExistingLoanExternalID";
+            String saleResponse = externalAssetOwnerHelper.initiateTransferByLoanExternalId(nonExistingLoanExternalID, "sale",
+                    getSaleRequestJson("05 March 2020", transferExternalId));
+            Type type = new TypeToken<Map<String, Object>>() {}.getType();
+            Map<String, Object> errorResponseMap = new Gson().fromJson(saleResponse, type);
+            assertEquals("The requested resource is not available.", errorResponseMap.get("developerMessage"));
+        } finally {
+            requestSpec = new RequestSpecBuilder().setContentType(ContentType.JSON).build();
+            requestSpec.header("Authorization", "Basic " + Utils.loginIntoServerAndGetBase64EncodedAuthenticationKey());
+            requestSpec.header("Fineract-Platform-TenantId", "default");
+            responseSpec = new ResponseSpecBuilder().expectStatusCode(200).build();
+            BusinessDateHelper.updateBusinessDate(requestSpec, responseSpec, BusinessDateType.BUSINESS_DATE, todaysDate);
+            GlobalConfigurationHelper.updateIsBusinessDateEnabled(requestSpec, responseSpec, Boolean.FALSE);
+        }
+    }
+
     private Integer createLoanProduct(final String chargeId) {
         final String loanProductJSON = new LoanProductTestBuilder().withPrincipal("15,000.00").withNumberOfRepayments("4")
                 .withRepaymentAfterEvery("1").withRepaymentTypeAsMonth().withinterestRatePerPeriod("1")