Challenges you may face while taking a commercial loan
Being the second-fastest growing economy worldwide, India has witnessed a surge in demand for business properties in the last few years. With such flourishing circumstances, commercial loan appears like a will-o’-the-wisp come true for SMEs.
It is nowhere easy for small businesses or start-ups to own a commercial or business property at the very initial stage. This process demands excessive cash that most seeding firms don’t have. Hence, a business loan acts like a saviour, helping businesses purchase commercial property. It’s an effective solution to fill cash shortfalls. Small companies are now able to unlock the gates for the latest workforces. Also, they can purchase new machinery, instruments, and repair tools to boost business income and growth.
What does a commercial loan imply?
A commercial or business loan is a finance solution for small ventures to increase the working capital instantly. Also, the company can purchase new pieces of machinery, expand the business idea, build new infrastructure, meet the company’s expenses, so on. However, these are generally short-term credit options, which can be both secured and unsecured nature wise.
Nevertheless, an entrepreneur applying for a business loan requires to present several relevant documents of the business. I.e., business establishment proof, business vintage proof, records of the entity, etc. Your lender will check your business CRISIL Scores (Credit Rating Information Services of India Limited) to verify and understand the financial records of your entity.
Commercial loan? But at what cost?
Practically, everyone thinks taking a loan for a company in India is easy. You barely have to carry the interest charge. Well, opting for a commercial loan in India may create several issues than it ever solves. Due to different parameters set by diverse lenders, getting a loan itself became a considerable challenge, followed by a line of problems. These are the issues your business may face before even the amount gets credited to your account.
Challenges a small business may face during a business loan:
- COLLATERAL REQUIREMENTS
Companies face immense challenges while opting for a business loan despite the effort of SIDBI and RBI to push commercial credit further for loan matters. The banking organisation still demands traditional collateral from borrowers as a security against the loan. Since start-up business holders have just commenced their business journey, it brings a risk of money shamming. If anyone fails to submit any collateral, they will not receive any loan to expand their business.
- LONG PROCEDURE
Supposedly, your business is in terrible need of instant capital to upgrade its systems. Yet, you fail to get financial support from banks because the Indian loan system incorporates a lengthy processing time, even if you have submitted all possible proofs. Getting a commercial loan in India is such a pain.
The real challenge begins after you apply and submit all relevant documents. The lenders verify your credibility again and again until 100% satisfaction hits them back! They would make you sign hundreds of papers to confirm a repayment guarantee from you.
- STRESS ON CIBIL RECORDS
If you have any delayed payment or bounce on your credit card, default repayment history on ongoing debts, it can affect your CIBIL/ credit score. It makes your credit record impression terrible in front of lenders. In India, the lender generally gives much importance to credit history under a business loan, forcing them to check every minor detail carefully.
Remember, even a tiny glitch in your credit card record can cause application rejection after months of waiting. Aside, having less income than the limit will lower your eligibility and place you in the loan brushoff dilemma. So, try to focus on enhancing the credit history instead of decreasing the loan value. Otherwise, the bank will directly reject your appeal.
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- FLUCTUATING CRITERIA FOR BUSINESSES
In general, you have to match the eligibility parameter set by the lending company. However, in India, several banks have various qualification parameters for different businesses. The loan eligibility depends on your company type, working capital, expenses and income value, etc. If you fail to match their predefined standard of eligibility, your application is likely to get rejected.
Indian banks sometimes can take ages to decline or approve your commercial loan application. Besides, the entire loan procedure is considerably longer due to a lack of technology involvement. However, you still can expect to get efficient business loans from several financial institutions due to their attempt to bridge the gap.