How to Avoid Small Business Loan Traps?

Business loans

Formation of a new venture always requires a large amount of money. If you are an entrepreneur on the threshold of starting a new business, you would have to scrutinize various financing options to fund your startup. Loans from banks or other financial institutions can be of great monetary help in supporting your startup. However, business loans have their own set of advantages and disadvantages. Before applying for a business loan, you should go through its terms and conditions carefully, in order to avoid any inconvenience in the later stage. Below are a few complications associated with small business loans and ways through which you can avoid it for your own benefit.

  • A major problem often cited with short-term business loans is the lack of transparency. Some financial experts recommend avoiding loan-providers who do not offer transparency.
  • With the help of a working capital loan, you can cover the daily expenses of your business as well as fulfill the immediate business needs. This makes a working capital loan appealing for a short term. However, the highinterest rates and short repayment period associated with working capital loans can take a toll on the finances of the business in the later stage.
  • It is always advisable to avoid loan-providers that charge a prepayment penalty.
  • Secured business loans are a common funding option for small businesses. A secured business loan is any type of business funding instrument secured by pledging valuable assets as collateral. In simpler terms, you are assuring the loan-provider of paying back the amount that you borrowed. In case of secured loans, if you are unable to adhere to the repayment guidelines, you might end up losing the valuable assets you pledged as collaterals.
  • Avoid financial institutions who try to upsell you into a bigger loan than you require.
  • If a substantial amount of a firm’s cash flow is going towards repayment of loans, companies can end up in a debt trap. As loan repayments consume the company’s cash, more loans need to be taken. This cycle can be hard to break. Hence, it is recommended to avoid stacking multiple business cash advances to avoid debt situation in the future.

Now that you are well aware of the traps associated with small business loans,  it is time for you to go through all the available financing options and make a wise choice. Choosing the right business loan can play a crucial role in deciding the fortune of your new venture.

A comparatively safer financing option for small businesses is longer-term installment loans with zero collaterals. However, entrepreneurs may find it impossible to qualify for financing through a traditional bank. That’s where Non-Banking Financial Companies (NBFCs) like Finserv Marketscan help. The hassle-free online application process, minimal documentation and flexible repayment option are the key features of business loans with Finserv Markets. Whether your business is small or large scale, business loans by Finserv Markets have been designed to cater to all your needs. So why wait? Get your business loan with Finserv Markets today.

Finserv Markets, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment, and exclusive EMI store, all under one roof- anytime, anywhere!

Leave a Comment