Many reasons come into play when it comes to business loan refusal. What to do if a bank does not approve your business loan. Check out the options to fund your business when a bank denies you a business loan.
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| What to Do If a Bank Denies Business Loan |
Options to Fund Your Business When a Bank Denies Your Business Loan
A business loan refusal may be discouraging for any business loan application. In India, 90% of new enterprises fail, and the primary cause for most of these failures is a lack of funds. It is difficult to obtain funding for a firm, especially while it is in its early stages. The road from a concept to income is exciting, and it needs the fund's fueling along its voyage. A lack of funds might even ruin the finest company ideas you've ever had.
A lack of funds is a regular occurrence for any business owner at any level. When a firm needs money, the first thing that springs to mind is a business loan. Though a business loan is a type of finance designed specifically for enterprises, obtaining one is difficult, and most applications are turned down. Many entrepreneurs grow dissatisfied in such situations and consider it the end of their business. However, a bank loan is not the only means to obtain company finance.
Here are other ways to raise funds for your business:
Angel Investing
Angel investors are influential people who invest in a company that they believe can be lucrative in the future. However, before approaching an angel investor, you must guarantee a solid business strategy. These investors are also creating investor groups to conduct more in-depth research on small enterprises.
Because they are investors, you will be expected to present them with a good portfolio. This is in contrast to venture capitalists, who are more interested in organisations currently doing well but want additional funding.
Bootstrapping
Self-funding, often known as Bootstrapping, is one of the greatest ways to fund a new firm. A startup requires more ideas, creativity, hard work, and less money. It is considerably more difficult to obtain money for your firm until your business strategy is implemented. At the commencement of a firm, one can spend their extra funds. It will be easier to obtain external capital later on when the firm is fully operational.
Venture Capital and Partners (VC)
Strategic partners for a company may be a fantastic source of financing since they pool their resources to aid another company. These partners have the option of becoming employees of the company. On the other hand, VCs are businesses that give small business capital throughout the early phases of a company's development. VCs seek substantial returns on their investments (your business). This is not uncommon for investors; however, some VCs may want to remain involved in your business choices after providing the cash.
Previously, VCs sought to decide for the firms they backed to preserve their investments. However, many VCs have shifted to a mentor position, advising you on business issues and providing assistance as a safeguard. Before accepting any cash, make sure you inquire what role a VC would like to play.
Microfinance Providers and Non-Banking Financial Companies (NBFCs)
Microfinance organisations and NBFCs may approve a previously refused business loan application. Such tiny microfinance organisations make it considerably easier to obtain a business loan. A microfinance company's laws and regulations are less stringent than nationalised banks. As a result, even if a bank declines a loan, one can obtain cash from such sources. However, keep in mind that the loan's fees appear to be larger than those of a bank loan.
Crowdfunding & Cloud Funding
Crowdfunding is a collection of small company financing persons that assist business ideas in reaching out to various possible investors via various channels. These investments can be made using either a loan or equity. Some crowdfunding platforms also provide incentives in return for investments. Crowdfunding allows you to reach out to a large group of investors rather than a single large investment. Cloud funding is a method of financing a business through the internet via a variety of investor organisations that allow you to pitch your ideas.
The good aspect about crowdfunding is that it may increase interest as well as aid with marketing and finance. Crowdfunding may be a lifeline for entrepreneurs who cannot obtain a business loan from a bank or locate an angel investor in their firm for the appropriate amount. Furthermore, if you go on a crowdfunding platform and try to persuade people to invest in your business, you may attract venture-capital investment later on if your firm has a very solid idea behind your business and a successful campaign.
Government Programs and Bank Loans
The Pradhan Mantri Mudra Yojana is an initiative that provides funds to micro, small, and medium-sized enterprises (MSME) (Micro, Small, and Medium Enterprise). The loans under this programme are separated into three categories based on the stage of growth of the firm - Shishu, Tarun and Kishore. Shishu stage provides loans up to Rs. 50,000, whilst Kishore and Tarun provide loans ranging from Rs. 50,000 to 5 Lakhs and 5 Lakh to 10 Lakhs, respectively. These loans are available for purchasing a car, the expansion of working capital, the purchase of plant, equipment, and machinery and do not require any collateral security.
Factoring of Invoice
Invoice factoring, also known as invoice advances, is a procedure in which an entrepreneur contacts a lender to sell past-due invoices and allows the lender to collect future payments from clients. This works by a lender acquiring your open invoices at a lower price and then collecting the amount owed.
Read Here: How to Choose the Right Lender for Your Construction Loan
Conclusion
A financial infusion, whether debt or stock, from private or institutional sources, may propel a firm to new heights or at the very least get it through a difficult moment. Several funding options are available for small businesses, and entrepreneurs should not be hesitant to use them.