COMMON CHALLENGES ENTREPRENEURS FACE AVAILING A BUSINESS LOAN

Starting a business in India is always challenging, regardless of your age.

Entrepreneurs of all ages must contend with the negativity of well-intentioned friends and family members who believe they will go bankrupt if they pursue their entrepreneurial dreams in India. Additionally, we must overcome self-doubt and anxiety, as your ambition of creating your business demands considerable determination and strength.

Numerous small businesses in India begin with enormous potential. Entrepreneurs are gifted and visionary, the early crew is diligent and imaginative, and the venture concepts are sound. Unfortunately, even promising small businesses fail within the first year or two due to financial difficulties.

Besides, young entrepreneurs in India face unique financial obstacles that older businessmen do not. Here are six common challenges faced by young entrepreneurs while availing of a business loan.

Challenge 1: You Don’t Have a Track Record for Your Company

It is the primary reason startups have a hard time obtaining funding. They lack the track record or extended credit history that a lender requires to assess their creditworthiness. It doesn’t mean they are not creditworthy; however, the bank cannot evaluate them. Furthermore, this problem isn’t limited to startup companies in India.

Although you’ve been in business for a long time, you may not have a track record if you’ve never borrowed or taken a business loan in India before. Banks want proof that you can use credit responsibly.

Overcoming Challenge 1

There is no quick fix for this problem; building a business credit profile takes time. Most traditional lenders, such as the bank, require several years of business experience. However, other online lenders, such as FlexiLoans, only require a year of experience to accept a small business loan application.

Challenge 2: It’s Challenging to Prove You Have Enough Money to Repay Your Business Loan

Lenders want to ensure that your business is capable of repaying loans. Traditional lenders in India, such as banks, often require a yearly income of at least INR 50 lakhs, whereas online lenders normally require annual sales of at least INR 20 lakhs. Whichever lender you speak with, the first question they will ask is whether your firm is capable of making every recurring payment. If your business does not fulfill its income or cash flow requirements, your loan application is unlikely to be approved.

Overcoming Challenge 2

If your small business does not fulfill your lender’s minimum revenue or cash flow requirements, it is unlikely that you will qualify for a loan. However, borrowed finance is not the sole option for business expansion.

Many alternative sources of money do not demand the same credit level as a small business lender. If you have the potential to leverage a small amount of capital to achieve a large outcome, a microloan may be right for you.

Challenge 3: Lack of Collateral

Entrepreneurs frequently lack valuable collateral to give traditional lenders, making it harder to acquire a loan. Additionally, traditional lending institutions in India are often unwilling to lend to firms that have previously secured capital from other sources.

Overcoming Challenge 3

You can seek a business loan without collateral from online lenders and Non-Banking Financial Companies (NBFCs) such as FlexiLoans in these instances. To avoid rejection, you must have a good credit score, a low debt-to-income ratio, and a comprehensive business plan. Without collateral, the lender will examine your credit history to determine your ability to repay the loan.

Challenge 4: Ineffective Cash Flow Management

It is the most significant challenge that many entrepreneurs encounter while expanding their businesses. Although cash flow is critical for a business’s survival, many entrepreneurs struggle to pay their bills and meet other obligations because their clients do not make timely payments.

However, after completing the project or delivering the goods on schedule and submitting the invoice to the client, the payments may take time to arrive. For young businesses to thrive, working cash flow management must be streamlined.

Overcoming Challenge 4

Closely monitor your cash flow, trim costs where you can, and sell assets you don’t need for quick cash. Make cash flow projections that you can use regularly to see how much cash the firm will require in the coming months. On the other hand, if you’re having daily cash flow issues, it’s time to examine your company’s finances.
Scrutinize all your profits and expenses by working with your accountant. If you wish to save money, you must first determine whether the cash flow is crucial to the organization and is manual or automated.

Challenge 5: Lack of a Good Business Plan

Many entrepreneurs are unsure how to develop a compelling business plan that will entice lenders. They face several obstacles, including an unfinished business plan that outlines the model, market size, competitors, scalability, marketing campaign, product design, and a comprehensive strategic road map. Financial institutions require a copy of the plan to determine how well your firm will function and whether you will be able to repay the loan.

Overcoming Challenge 5

You must provide a detailed plan that predicts your expenditure and risk mitigation strategies in the event of an unforeseen event. Hence, considering the existing market situation in India, strive to design a target-based plan that maps your organization’s growth chart and future opportunities. If necessary, seek assistance from a project planner who can create a transparent and logical strategy.

Challenge 6: Unaffordable Interest Rates

At times, the interest rates on loans are exorbitantly high, posing a significant challenge for entrepreneurs. Thus, by selecting MSME loans in India, the interest rate and EMI can be lower than the cost of long-term interest. Interest rates are a major source of concern for entrepreneurs for obtaining a company loan.

Traditional banking institutions’ loans are typically associated with high interest rates and additional fees, particularly if you are a new firm or lack collateral. Moreover, handling the monthly installments might be stressful.

Overcoming Challenge 6

Entrepreneurs should speak to multiple lenders, particularly current lenders, to determine the optimum interest rate and duration. As a rule, choosing a long tenure will result in a low interest rate and EMI. Conversely, your long-term interest will be significant. Maintaining a high credit score is another way to negotiate lower interest rates for business loans in India. Request a loan quantity that is sufficient to meet your immediate needs, as large loan amounts will attract excessive interest rates.

Conclusion

Forget your concerns regarding the difficulties associated with obtaining unsecured business loans in India. There may be numerous lenders in the market, but at FlexiLoans, we guarantee that your loan will be approved without any difficulties. Apply on our website and we will deposit the loan amount directly into your bank account. It’s that simple, and you’re now prepared to launch your firm!