Top 10 Common challenges while availing a Business Loan in India

Table of Contents

Top 10 Common challenges while availing a Business Loan in India. The Indian economy is constantly growing with small businesses. Business loan seems like a dream come true. Sometimes, to avail a business loan in India, several challenges arise. Firstly, poor access to funds, lack of transparency and more importantly, the collateral needed to secure the credit. Finally, a way to fill cash shortfalls and open the gates for the new workforce, repair that equipment, or purchase new equipment to give a boost to your business, income, and growth. 

Top 10 Challenging experiences faced during taking a Business Loan

Let us now discuss the most common challenges faced by entrepreneurs in availing business loans to start or expand their business.

1. Documentation

In general, every loan application process is a lengthy one. It requires several papers to be submitted and few might be unrealistic expectations according to the business owners. The documentation work will consume time and hence business owners might lose focus on the crux of the business. They will only be looking for all the papers. Also, they may not have all the documents as required by the RBI and hence lose their chance for applying for loans legally. This is when they approach local lenders and these people exploit the condition. 

2. Maintaining Cash Flow

One of the biggest challenges for entrepreneurs is to maintain the cash flow for the smooth functioning of the business. Being regardless of the profits your business makes, there should be sufficient funds for the business. A business owner should have an approximate budget and plan for his/her business in the starting of the month. If you don’t have sufficient funds even for some months to run your business, you are really in a difficult situation. 

To avoid such a situation one should plan their business in advance, and if there is any requirement of funds they should start looking for it in advance. So, their business doesn’t get affected.

3. Lengthy Procedure

Your business is in dire need of upgrading, and you need immediate cash to fill the void. But Indian business loans are known for long processing time even if you have all sorts of proofs. It’s a pain point of taking a loan in India. 

First, you apply for business loan, and then you submit the proofs. The real challenging journey begins after that. Lenders check your details again and again until they are 100% satisfied. They get hundreds of signs on various kinds of documents to get a repayment guarantee from your side. Also, they call you a hundred times to confirm each and everything, including your business, the time when you started it, and how much you are earning from it. 

It takes ages before you receive final approval or decline from the business loan department. Till then, you have to keep your business expanding plans on hold, which may affect your revenue goals.

4. Collateral Requirements 

Even though the Ministry of Small and Medium Enterprises, the RBI has endeavoured to capital financing, entrepreneurs keep on confronting difficulties when looking for credit. Normally, money related establishments, for example, banks, request insurance or conventional security from business advance candidates. Most business people, given the size and their neighbourhood nearness, can’t offer insurance, in this manner neglecting to verify the credit expected to extend their organizations. 

In such a manner, an unsecured business loan from NBFCs or banks can be utilized to meet the particular needs of business visionaries and entrepreneurs. It offers business advances online with no commitment, hence guaranteeing the credits are unbound. Apply for a business loan with finance Buddha get offers which suits your requirements.

5. Process Time

Let us assume you arranged for all the documents. Still, the problem is not solved as the processing time is huge with the lending institutions. You need to submit the documents and they will verify them. It will take time as others might have applied too. 75% of individuals between age 25 and 34 aim at doing business and hence your application is in the queue. By the time you get communication, your competitors will be far ahead. Even if you wait you are not sure of getting approved. 

6. Less Loan Amount than Required

Loans for business in India start with a lesser amount. Generally, financial institutions like banks can’t easily trust when it comes to offering business loans to aspiring entrepreneurs. The risk of business closing down always lingers in the air. So, banks prefer to start small to avoid risk. 

They offer a much lower amount than required to see the loan payment performance of business owners. They wait at least six months before they decide to provide a slightly more significant amount than the previous one. And the journey of loan continues based on the payment history of the borrower.

It may put banks in secure zones, but businesses have to adjust their plans based on the money they get. Often, owners either cancel their business loan as it fails to meet their expectations or they jump from one bank to another. They do it till they find the one who gives them the exact needed loan amount.

7. Absence of a Detailed Business Plan 

To be successful in any business you need a well-defined business plan. The plan should include all the estimated expenses such as your staff salary, rent of the outlet, factory, inventory purchase cost and should outline the scalability, market size, competition, product development, marketing strategy, cost competitiveness, management bandwidth, and overall strategy road map. 

A perfect business plan is one which not only shows hope of profit but should also include the risk factors involved and losses which can happen in the worst case. These are the requirements to be included while preparing a business plan. Unfortunately, some business owners forget to include these points in their business plan which results in rejection of their business loan application. As all lenders check for the business plan before approving any business loan application, and if they are not satisfied with it, they reject it.

8. Lengthy Sanction Period

Traditional lenders, generally, take an extended period to sanction a business loan in India. The time taken to secure credit for a business can be crucial in determining its profit or loss. Banks can even take months to approve a business loan. This can be a critical challenge for entrepreneurs and small business owners seeking instant capital to enhance their product offerings.

Moreover, a high business loan interest rate in spite of collateral can also be a deterrent for loan applicants. Keeping these factors in mind, you can avail the right business loan that addresses your needs by weighing in the many advantages that non-banking financial company’s offer.

9. Additional Stress

Operating a business can be thrilling but brings with it, its own set of stress and challenges. The last thing an entrepreneur needs is needless anxiety when seeking credit. Perhaps, you are looking for a much-needed cash infusion to obtain the latest technology or an upgrade in order to clinch a lucrative deal. This is why it is critical to know of a simplified process from reputed lenders that offer easy and quick loan application process. To understand business loan eligibility visit our website.

 Now you are waiting for the day to come when you receive a message of the amount credited to your accounts. You waited at least a month to receive the final approval. But instead of getting an approval, you got a message of business loan declined because your credit history displayed another glitch. Getting loans rejected is a common thing in India. Entrepreneurs often face such situations. The real deal behind this is banks take too much time to announce the final results.

10. Interest Rate

Ok, if at all you cross all the above hurdles and get your loan approved. Still, there is a catch and that happens in the charges and the interest rates. The standard interest rates and charges might be very heavy for the loan amount you seek or the duration you would like to hold the principal amount with you. With a heavy interest rate, you will land in trouble to manage to repay them on a monthly basis.