Small Business Sector is a considerable contributor to the economic growth of our country. The small and medium enterprise sector adds great value and offers a lot to people. Regardless of their importance in the industry, SMEs often face serious challenges at times. Similar to other businesses, SMEs too are subject to risk when it comes to operation. One of the major problems with SMEs is that most entrepreneurs often fall prey to lack of research and lacklustre planning. They fail at making accurate assessments mainly in the financial avenue – primarily working capital needs. Even if they can assess their needs accurately, they cannot find means to achieve financial help.
The following are a few common Business Financing mistakes that are committed by Small and Medium Enterprises:
Lacklustre planning: Every business needs to have a long-term plan. Clarity about the future is essential regardless of the company’s size. One of the major shortcomings of SMEs is that they often fail to plan for a long term. Business owners are more engrossed and inclined towards daily operations and its troubleshooting, overlooking the bigger picture. Pre-planning is essential when it comes to financial aspects. A failure to do so can leave a person or his/her entire business finance in a crunch.
A sound business finance plan involves an enterprise approaching a financial institution and working in amalgamation with them. A steady relationship with a bank or an NBFC comes in handy at the time of a financial crunch. Most of the SMEs avoid this option, and that is where they fail, as they must not shy away from approaching an NBFC to get the funding they need. Once the financial stress is dealt with, everything can fall in line.
Wrong cost predictions: The least an SME can afford to do is to make a wrong prediction. Most of the SMEs often underestimate their costs in order to avoid paying interest on excess resources. It is an area where they go wrong. Even when they approach a financial institution for a loan, they face the same problem.
Hidden charges: There is a reason why a financial expert suggests you to borrow from a highly reputed NBFC. This is because several new lenders often burden SMEs with hidden fees. At first, the Business Loan Interest Rates offered by them seem attractive, they often end up luring the SMEs and then making them pay hidden charges. However, a highly accredited NBFC such as Bajaj Finserv maintains transparency and each cost can be referred to on its website. Thus, there are no hidden charges. Instead, there is clear transparency about each aspect.
Choosing the wrong finance option: In order to get a better deal, most SMEs often lean towards new moneylenders. These lenders are disorganised and have no flow in their functioning. The loans they provide do not match up with the actual needs of an SME. For this reason, although it seems quite good to an SME in an initial stage, in a long-run it haunts them.
Trying to add collateral: Desperation tests strength and mental capability. Most of the SMEs often fail in this step as they end up putting too much on stake. They end up submitting collateral where there is no need to do so. There are NBFCs such as Bajaj Finserv which do not require the borrower to submit any collateral against the loan he/she borrows.
These are the common mistakes that need to be avoided. Remember that the loan approval timeline and receipt of funds plays a significant role in the success of an SME. Finally, one should also emphasise on selecting the right lender, to get the best business loan for their needs.