Business loans are helpful for business owners, but getting them may not be straightforward. Starting a business is a challenging task, and it often gets tougher when you have to arrange for its financing. Business loans in India come with their own share of challenges that you should be aware of so that you can be better prepared before applying for them.
Below are the 5 major challenges that every business owner has to deal with when applying for a business loan in India. Take a note.
5 Challenges of Business Loans in India:
- Higher Interest Rates
The other side to having collateral is that you will be charged lower interest rates. You’ll be paying lower rates for your loans, but you need to make sure that the terms of those deals are fair.
Imagine if you had a loan and the interest rate was below market. The result of this can put your finances at risk because now, not only do we have higher monthly payments but also less money coming in from other sources such as dividends or investments, which could lead us into further debt territory should the price drop even further.
This doesn’t mean that business owners can’t try negotiating for a lower interest rate if they don’t want to put up collateral; it just means that they’ll likely have a harder time doing so.
- Delayed Approval
Applying for a business loan takes time, and it’s not something that can be done overnight. Most of these applications are put through a certain series of steps, including verifying information, analyzing your business’s history, and evaluating your credit score.
All in all, most financial institutions or lenders take at least two weeks to process an application for a business loan. If you need the money immediately, this will probably not work out in your favor.
- Collateral Requirements
Getting a business loan without collateral can be quite hard. The main reason for this is that lenders want to make sure they are covered in case the business fails and they need to recoup their money. It is quite a challenge to get a business loan without collateral, but it is not impossible. One thing you can do is prove that your business is profitable and has a good track record. You can also provide a solid business plan and show that you have a good credit score.
That being said, some people do get loans without collateral, but only if they have a very good credit score or a well-established record of making their monthly payments. Those who don’t meet these business loan requirements need to put down collateral, be it in the form of property or equipment.
Even with collateral, your business’s history of payments, and everything else in order, the chances are that you will still be denied a loan. The best way to get a loan when your business is in its early stages is to find an angel investor. An angel investor is someone who has money to invest in businesses and is willing to take a risk on a new company. They are not as common as venture capitalists, but they can be a great help to your business.
You can appeal this decision if you want, but that will also take a significant amount of time.
- Stricter Lending Standards
Lending standards are the minimum requirements that a lender looks for when considering a loan. When a business borrower asks for a loan, the lender will look at the company’s financial history and credit score to determine if it is a safe investment.
If the standards are too loose, the lender could be taking on too much risk by lending money to borrowers who may not repay the loan. This could lead to more business failures and decreased availability of loans for struggling businesses.
A stricter lending standard means that the lender is more likely to approve a loan if the company has a good credit score and a healthy financial history. It also means that the lender is less likely to lend money to businesses with a poor credit score or a history of financial instability.
By requiring businesses to meet certain benchmarks, lenders can be more confident that they are lending to ventures with a good chance of succeeding.
Approving a business loan is not like approving a personal loan; that’s why the approval process is harder and more complicated. That being said, lending partners can potentially be your best source for financing if you don’t have any other options and you are willing to put up collateral. But, the process is not as easy as filling out a few applications. A trusted NBFC can be your best bet when looking for a hassle-free business loan.