Problems faced while availing Business Loan in India

What is Business Loan in India?

A loan amount specifically availed for the purpose of starting a business or carrying forward the business operations for growth and development is called Business Loan in India. There are different types of loans in India that can be availed and one such loan is business loans that the business owners or start-ups or entrepreneurs can take.

Business Loan in India

Problems while availing Business Loan in India:

There are certain challenges and problem that one always faces while availing different types of Business Loan in India. These challenges are-

  • Poor credit score of the person availing business loan- A person’s credit score plays a keen role for approval of the business loan in India. It shows the repayment capacity of the applicant against the loan amount. Banks and lenders usually consider credit score of the applicant before providing the loan amount. The higher the credit scores the higher the chances of sanctioning the loan, the lower it is the lower the chances of getting a loan. The credit of the applicant is affected by several factors including late payments of EMI, outstanding loans, multiple loans and unsettled debts. Therefore it is advisable for the business loan applicant to have a good credit history before applying for it.
  • Lengthy period of loan sanctioning- One more problem faced by the business loan applicants is the time period involved in sanctioning of the loan. This can post challenges for the business owners as sometimes they need loans in shorter periods. The time period is crucial factor for deciding the profit or loss of the business.
  • Absence of the detailed and important business plan- Sometimes, while applying for a loan for the business, the applicant have only the idea of business and not the detailed plan of the business that is important to be presented before the banks or lenders in order to acknowledge the potential of the plan. Without knowing the potential and chances of growth the lending institutions are not been able to analyze the whole scenario for whether to provide the amount or not.
  • Insufficient flow of cash- While examining and evaluating the business loan applications the lending authorities usually check the background and history of the cash flow in the business in order to ensure a proper monthly repayment of the loan amount and interest by the applicant. If the cash flow was less, then the chances of rejection of the business loan increases.
  • Multiple loan applications by the applicant- In order to get business loan from any potential source, sometimes the applicant or the business owner just applies for the same in different institutions. Multiple applications of loan can also post problems as it affects the credit score of the applicant in a negative way. Therefore, it is advised to the applicants to always evaluate all the loan plans and then choose the best one that suits them.
  • Added level of stress to the applicant- One more important but usually neglected challenge by business owners and applicants is the stress level. Operating a business can be really challenging and overwhelming and while availing a loan no anxiety or stress is needed as it will be reflected in the whole business loan availing application process and can make the situation worsen.
  • Inability to pledge or fulfill the collateral requirements- Banks or lenders usually ask for collaterals in order to provide the loan amount. These collaterals serve as a security for the lenders in cases when loan will not be repaid. The applicants have to provide with fulfilling these conditions and inability to pledge these can result in rejection of the application.
  • High rate of interests- An important factor making it difficult for businesses or owners to avail a loan are the high rate of interest. Even if the amount to be availed is less, the high interest amount makes it difficult to be paid.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.