In the fast-paced and fiercely competitive world of business, the availability of capital often turns out to be the key differentiator that separates success from stagnation. A business has multiple monetary requirements for various reasons, such as buying new equipment, hiring and training staff, business expansion, and more. For micro, small, and medium enterprises (MSMEs) to sustain themselves, they require reliable cash flow, time, and effort. Additionally, a business is built to grow, which requires working capital to establish, run, and expand. All these aspects rely on a dependable source of financing.

Arranging working capital can be an additional task, considering the management and sustenance of a business. Therefore, the most common way to raise capital is by getting a business loan.

Exploring the role of business loans in entrepreneurship

While a business is built to make money, it also demands consistent investment to facilitate its growth. This is where a business loan can be helpful. Every business needs to incur short-term and long-term expenses. Short-term expenses cover temporary financial scarcities, such as day-to-day operations, wages, and bills, while long-term expenses include significant financial investments, like buying machinery, arranging workspace, and expanding the business. All these requirements can create a financial lag in the existing cash flow. Businesses require a regular inflow of cash to sustain and grow the business, and that is where a business loan comes to the rescue.

Micro, small, and medium enterprises (MSMEs) require extra financial balance for short-term and long-term finances. Established businesses and startups both encounter unique set of challenges. However, the initial phase of setting up any business, particularly those without financial backing, is typically more demanding. To support these needs and more, financing institutions provide special MSMEs loans to businesses, that help facilitate their growth without financial hindrances.

Although business loans are empowering for startups and MSMEs, it is essential to be prepared for potential roadblocks. Here’s a comprehensive list of challenges associated with MSME loans and effective strategies to overcome them.

Navigating the challenges of applying for a business loan

Credit Score

A credit score serves as a crucial parameter that reflects the borrower’s creditworthiness, offering insight into their credit history – whether it demonstrates a positive or negative financial track record. Whether it’s a startup business loan, an MSME loan, or any other business-related credit transaction, once money is lent by a financial institution, a credit score or a CIBIL gets allocated. A higher creditrating indicates timely repayments and makes the borrower more likely to be eligible for another financing opportunity. However, achieving a credit score higher than 750 is extremely difficult and requires a near-perfect credit history.

One of the primary reasons why any business loans, MSME loans, or startup business loans get rejected is due to bad or below-average credit history. Improving the credit score, such as by repaying debts on time, can increase the chances of loan approval. Moreover, enterprises with good or excellent credit scores may also benefit from lower interest rates on business loans.

Inconsistent Cash Flow

Cash flow refers to the steady movement of money within a business, necessary to run and sustain its operations. A reasonable cash flow indicates the business’s ability to overcome financial setbacks and repay its debts while continuing day-to-day activities.

However, inconsistent cash flow raises concerns for lenders providing business loans as it signifies instability in money inflow within the business. Be it an MSME loan, startup business loan, or any other kind of business loan, a steady flow of cash reflects well on a business’s capability to make timely repayments. Insufficient cash flow can also lead lenders to request collateral, which can further complicate the loan process.

Insufficient Collateral

Financial institutions often require collateral against the business loan offered. Established or large businesses find it relatively easier to provide collateral compared to small businesses seeking MSME loans or startup business loans. Small businesses often struggle to qualify for a business loan due to difficulties in securing collateral, hindering their growth potential.

Some financing institutions, including Godrej Capital, offer collateral-free loans that can be a blessing in disguise. Collateral-free loans provide micro, small, and medium businesses with an opportunity to grow by applying for a business loan without the need for collateral, thereby making it easier to establish or expand a business.

Rigid Repayment Systems

As entrepreneurs pursue their business goals, borrowing money becomes a strategic choice to overcome financial obstacles. Ideally, a business loan should liberate MSMEs and startups from small-term or long-term financial bottlenecks, enabling smooth operations and growth. However, the rigid repayment system can sometimes impede the business’s functionality and cash flow, hindering development and becoming counterproductive. The inflexibility of repayments, coupled with the repercussion of late payment, creates a troublesome experience in the money lending and borrowing process.

Lack of Incentives

From the loan application to the repayment structure, there are limited elements in the system that encourages or reward the efforts involved. The absence of incentives throughout the process can be demotivating for business owners. Although business loans are meant to provide opportunities for business growth, the lack of positive associations with the loan process can dampen motivation and hinder the potential benefits.

How to reduce the burden of loan repayments?

As discussed, inflexible repayment systems often compound ongoing business challenges. While business loans are meant to facilitate growth, some business owners hesitate to consider them due to the additional burden they may bring to resist such options to avoid the extra burden that comes with it. Managing a business isn’t an easy affair, exposing business owners to the risks of overhead payments, invoice clearance delays, and seasonal impacts, all of which can hinder the timely repayment of loans. Moreover, the lack of support in handling unforeseen issues can exacerbate the problem.

The obvious solution to overcome the pressure of repayment is to plan finances more effectively. But a smart way to handle the load of repayment is to opt for flexible business loans. Financing institutions like Godrej Capital offer flexible business loans that allow you to focus on growth and expansion without feeling weighed down by the burden of the loan.

Godrej Capital’s Business Loan - #IssLoanMaiLoadNahi

Contrary to popular belief, business loans do not have to be burdensome. They are designed to provide financial assistance to businesses, enabling them to achieve excellence. Godrej Capital’s Business Loan does exactly that. With flexible repayment options like designing your EMI, principal holidays, zero collateral loans, quick disbursals, and much more– Godrej Capital’s business loan is load-free. The flexibility and fast turnaround times allow businesses to focus on what matters most, without the stress of dealing with the unpleasantries of the financing institutions.

Business loans are designed to empower entrepreneurs in establishing, growing, and expanding their ventures. While obtaining a business loan can seem like a daunting task, it doesn’t have to be. A business loan like Godrej Capital offers flexible EMI, zero collateral requirements, quick approvals, exciting rewards, and more, which can help ease the load.In conclusion, making smart financing choices can lead to a different, load-free outcome and will allow you to focus on amplifying the business.

Financing through Godrej Finance Limited. Product T&C apply. For details visit www.godrejcapital.com/business-loans.