What challenges small businesses face in getting SME financing?

Most of the startups today are founded by talented millennials who have a very clear vision of what they want. The initial phase goes with innovation and such a promising scene that one would guess the company will surely foster success. However, more often than not, these startups fail within the first few years of establishment. The most common problem faced by entrepreneurs is getting a required business loan and assistance from other SME financing schemes. This article talks about 4 such challenges that small businesses face in this regard.

  • Lack of a committed balance sheet

Till a generation ago, new business owners would do most of their dealings in cash. The idea here had been to evade tax by avoiding bank transactions. This idea gave way to such businesses avoiding maintaining a business sheet altogether. Without the business sheet, it is difficult to demonstrate the firm’s growth over the years. Post demonetization, it was expected that significant deals will no longer be carried out in cash. However, even today, the legacy has carried on, and most businesses do not maintain a balance sheet in the initial days. This makes it difficult for them to get business loans.

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  • Inability to access accurate fund requirement

Most businesses are founded by people who do not have much of an experience in this regard. Thus, they do sit down and prepare financial estimates for the year and seek business loans accordingly. What they fail to do is include working capital requirements to meet the business cyclically. This lack of planning costs the business, and they fail to meet the working capital requirements. As a result, it is often seen that the promising small business is unable to survive for more than two or three years since its inception.

  • Lack of detailed business planning

Another common problem with first-time entrepreneurs is that they base their business on personal experience and have a lot of emotional attachment to it. In the process, they forget to document the operational details professionally. Now, when they approach a bank for a business loan, the lack of a detailed business plan becomes a hurdle to loan approval. Such businesses are not able to give clear details about product development, cost competitiveness, management bandwidth, market size, and other details to the bank. Without this information, the bank is unable to process a business loan, and as a result, finance remains one of the biggest problems for most small businesses.

  • Unable to substantiate fund requirements

Many young entrepreneurs are so focused on their business and getting their loan approved that they do not think from the lender’s perspective. As per the process of any SME finance company, there will be certain prerequisites to issuing a loan. The lack of preparation 9on the part of the entrepreneur and poor articulation skills ensures that the bank representative does not get the data and figures that he is looking for. Sometimes language barriers add on to this. The result is that the business remains unfinanced.

These are some of the challenges that most businesses have to overcome in their path to funding. As you can see above, with proper planning on the part of the entrepreneur, all of these can be overcome.

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