Recent initiatives by the government such as Make in India
and Digital India have given entrepreneurs and startups a boost in
India. However, getting funds for building a startup or a business is not an
easy task. Getting a Business Loan in India is extremely difficult
due to several reasons such as lack of collateral, cash flow issues, and
reluctance on the part of lenders to invest in a business in its early
stages, and many more.
When it comes
to a Business Loan for a startup, there are various options available based on
different requirements such as loans for setting up a business, working capital
loans, cash advance loans, and so on. Entrepreneurs can raise capital in
many ways including:
a) Availing
loan from a bank, non-banking financial company (NBFC), or other financial institution.
b)
Alternative routes such as crowdfunding.
c) Business
funding by angel investors and venture capitalists.
Most banks
and financial institutions today lend money based on the four essential C(s)
listed below. However, startups find it difficult to meet each criterion
making it hard for them to get loans from banks. These 4C(s) are:
1. Capital
2. Collateral
3. Capacity
4. Character
Difficulties
Faced by Startups in Getting a Business Loan in India
Although there are different ways new entrepreneurs can raise
funds for their business, without a solid credit history and proper revenue
proof the chances of rejection of your startup Business Loan request are
high.
The main difficulties that lie in getting funds for a startup
include the following reasons:
Time spent in
business
One main criterion for lenders while the approving loan
application is the assessment of the risk involved. Although there are several
factors that are considered during the process, the one that is specific to
business credit is the total time the startup has been active
for. Lenders typically approve of those businesses which have been
functional for at least two years. In the case of startups, lenders are
hesitant in providing them credit due to them not being in operation long
enough and other financial proofs that the lenders feel are necessary to keep
the business up and running.
Cash flow
inadequacy
Any lender will always make sure that the entity or organisation
they are funding is capable of repaying by ensuring if they have a regular cash
flow stream in place. Startups, more often than not face situations where their
expenditure is more than their profits which can lead to cash flow problems.
This makes lenders doubtful of their repayment capability and hesitant to give
them a loan.
No collateral
When it comes to startups, lenders usually do not want to take the
risk of loaning money to businesses in their infancy without having something
as collateral from them. Since startups cannot promise any property
or assets as collateral that the lenders can seize in the case of
non-repayment, they are unwilling to fund them.
If you're an entrepreneur looking to raise capital for your
startup, then getting a Business Loan in India is relatively easy
if you opt for alternative lender routes such as crowdfunding, angel investors,
and so on. Not only do they speed up the process but also offer several other
advantages as well such as:
1. Flexible requirements and eligibility criteria.
2. Faster approvals and quick turnaround time.
3. Ease of online loan application.
4. Quick and sometimes instant loan disbursement after approval.
Parting
Thoughts
For budding entrepreneurs looking for Business loans in
India, it is advisable for them to seek out alternative lenders who acknowledge
and weigh upon the business idea, and the market strategy employed rather than
focusing on the cash flow history and other variables. If your startup has a
solid strategy and a dynamic business plan, the chances of getting a loan
increase substantially.
To apply online for Credit Cards, Secured Loans and Unsecured
Loans, visit www.mymoneymantra.com, the leading online lending
marketplace that offers financial products from 70+ Banks and NBFCs. We have served
2 million+ happy customers since 1989.
Talk to our Loan Specialists toll-free at 18001034004 to
know more about our products and offers.
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