Top 6 Challenges When Taking Business Loans

Short-term Loan

We all love to dream big, but very few of us have the determination and discipline to follow those dreams and achieve them.

Moreover, apart from sheer will and discipline, there are other ingredients that are an important part of the recipe to success – a rational start-up idea or a business plan with potential to succeed, passionate team members, a clear vision and mission, steady financial support, and sometimes, a little bit of luck.

When it comes to leading a successful business, one has to not just be smart intellectually, but wise enough to know what our options are in terms of financing; to consider both the opportunities and the challenges.

To help you better prepare to sail through the processes, here are some of the challenges that you must be aware of:

1. A Flawed Business Plan:

The key to a successful business is a well-founded plan, based on research and data, and a futuristic vision to win.

Being a business owner and one of the leaders of tomorrow, you need to consider all the involved expenses such as the rent of your store, staff salary, inventory / storage costs, and such.

You also need dedicated budgets for scaling your business down the line. For this, a detailed roadmap has to be created after studying the competition, product development, market size, cost competitiveness, and the overall strategy.

Yes, it is important to be optimistic in your approach, but do not set unrealistic targets and then face the strong waves of disappointment.

You also have to take the possible losses into account, and prepare for them. These losses and risk factors have to be a part of your plan, only then can you cross milestones with confidence and consistency.

2. The Documentation Dilemma:

The first challenge on the list is the bunch of documentation. You have to collect multiple important documents and compile in order to apply for business loans.

If you do not already have them, the process is sure to take you a good 2-3 weeks or so.

Sometimes, it is a hassle to obtain these papers, and as a result the entire application process gets delayed. In addition to this, after the submission of these papers, their verification and sanctioning takes another few working days or so.

As a business owner, you can turn to independent loan lenders that do not demand much in terms of documentation; of course, after verifying their credibility.

This is where you are likely to fall prey to scams. Do a thorough background search before choosing a particular local lender. 

3. Maintaining Cash Flow:

As we all know, today we are living in the era of uncertain times, making it more difficult for business owners to maintain a steady cash flow.

This game of profit and loss is one of the never-ending challenges for small business owners, and for the right reasons.

Business owners have to closely monitor the business data to analyse the performance, and optimise their business strategy in accordance with the data received.

The second most important thing is to set the right budgets and targets at the beginning of the month and stick to them throughout the period.

Always plan well in advance, and in a way that your business can stay afloat for at least 4-5 months, even in the worst-case scenario.

4. The Need For Collaterals:

Today, there are a number of associations and schemes out there that make genuine efforts to financially support MSMEs, including the Ministry of Small and Medium Enterprises and the RBI as well.

But, the capital financing challenges continue to get in the way of aspiring business owners. Why? In most cases, banks are the choice of preference for taking business loans.

These financial institutions usually demand insurance or conventional security from business owners who require funding.

Many small businesses cannot meet these prerequisites, making it almost impossible to avail finance from banks. 

This is where collateral-free business finance from reliable NBFCs come to their rescue. As the name suggests, the business owners are not required to put any collaterals at risk in exchange for quick funding.

These NBFCs do have their own set of terms and conditions, but these are bare minimum requirements that can be easily met by small business entrepreneurs.

5. Less Loan Amounts Available:

In India, loans for small and medium businesses start at a much lower amount than desired.

NBFCs have their reasons to be wary while handing out loans to businesses that are not as well-established yet, and hence prefer to start with finance of as less an amount as possible. 

This way they get to monitor the loan payment performance of business owners, before extending their full financial support.

This analysis period is usually of no more than six months. If the business manages to meet their targets and make the promised profits, the NFBCs then lend them loans with significant amounts.

As they initially receive a lower loan amount than expected, they naturally have to alter their business plans to not stretch their budget.

More often than not, business owners have to borrow loans from different banks or financial institutions to keep their business going, making the journey to expansion much tougher and longer for them.

6. Interest Rate:

After jumping through all the above hurdles one way or another, then comes the grand question of – Interest Rate!

Why and how would that be a challenge? The standard interest rates vary from bank to bank, but on an average the charges or interest rate on your loans might become an extra responsibility if your business is not doing too well.

Keeping up with this hefty interest rate to be paid every month is one of the most important challenges that you must prepare for.

During the high interest rate period, banks charge more for business loans. The decision of taking a loan during this period can hamper business growth.

It is definitely wiser for small business owners to take loans when the interest is relatively low.

This can help facilitate business growth and increase profitability because businesses can earn enough off of new ventures or product ranges to pay for the loan interest, and the leftover money can be considered as profits.

Scale Up Your Business With Ashv Finance

Unlock your business growth with Ashv Finance, one of the most reliable and leading loan providers in India.

They provide collateral-free business loans to small and emerging businesses (at least 2 years old), to give them easy access to finance at the right time. Here are is the extensive range of their loans:

  • Micro Business Loans
  • Dukandar Loans
  • Mansha Loans
  • Unsecured Business Cluster Loans
  • Secured Business Cluster Loans
  • Banking Surrogate Loans
  • Unsecured Business Loans
  • Secured Business Loans
  • GST Surrogate Loans

In addition to the easy 4-step loan application process, you get other benefits like fast approvals, flexible tenure, loan disbursement in 5 days, cash flow-based evaluations, and minimum documentation.

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