In any business, capital infusion is an ideal solution for various financial issues. It provides relief from monetary mismatches and allows you to cater to new growth possibilities. You can consider borrowed capital and opt for a business loan. Business loans provide easy fund accessibility with minimal documentation requirements. However, at times, there may be some challenges that crop up when availing this loan. These include the requirement of collateral, lack of transparency, and more. It’s helpful to know about these challenges before you apply for a business loan so that you know how to deal with them.

Discussed here in detail are a few obstacles you may face when availing a business loan:

  • Security requirement

While the Ministry of Small & Medium Enterprises, Small Industries Development Bank of India (SIDBI), and the Reserve Bank of India (RBI) have made a lot of efforts to push business funding, business owners may still witness challenges when seeking business credit. Often, financial institutions may ask for a security or collateral. In case you are a startup, pledging a collateral may not be easy for you, which may result in business loan application rejection.

  • Lengthy disbursal period

Some lenders can take a longer time to disburse business loans. As the time taken to avail business credit can be an important determinant in deciding your profit or loss, it is a critical challenge for you, especially if you are a small business owner or entrepreneur looking for instant capital to enhance your product offerings.

Additionally, the availability of business loans at a higher interest rate on account of no collateral may be another deterrent for you. Keeping such parameters in mind, you must ensure to avail the correct business loan that meets your requirements at minimal cost.

  • An unimpressive credit history

Operating a business has its own set of benefits and challenges. One such challenge is managing the financials in an effective manner. A poor financial decision on your part that resulted in you missing out repaying an instalment of your previous loan, or credit card payment, or anything that resulted in a bounced cheque, impacts your credit worthiness in the eyes of the lender. In extreme cases, lenders might downright reject your loan application rather than lowering the amount, if your credit history raises a lot of red flags for them since it proves that you might not be able to repay the loan responsibly.

Ending note

Every business requires monetary assistance to purchase, replace, upgrade, or repair its resources in some way or the other to continue with its operations and earn profit. In a few cases, an urgent need for replacement or repair may put a dent in your budget. However, when you select the right bank and apply for the right type of business loan, you can use it to your business’ advantage. It’s important to have a good credit score, a clear plan for repayment, and clarity on the terms of the loan before you hit on the business loan apply button.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.