A business requires capital for it to be sustainable i the long run, and money being a scarce resource, it’s is not always available and that is why financial institutions such as banks and credit offering saccos came up to assist in this. Financial institutions offer a wide variety of loan types and term borrower in this case being the business, is the one to select the loan that you want and you are comfortable paying.
Most small businesses do not go past this phase because of the inadequacy of funds on their side and this is brought about the the dependence of the business sales on one or two customers and this makes the business to operate in a very risky ground since in case of these customers shifting, the business will suffer severely. Borrowing of loans is the most soughted for option by businesses because they are able to get enough capital so as to grow their business by focusing instance increasing their scope of services and also the quantities involved.
The process of seeking a loan from a financial institution is not an easy task and most of the businesses especially the small ones end up not being successful in their request, this is due to some reasons for example having a negative credit report,banks will not give you a loan if they find out that you are not credit worthy. Another pitfall that most businesses fall into is the lack of adequate collateral or security for you to get the loan.
Businesses are grouped according to various sectors some of which are at a higher risk than others, the financial institutions will be a bit reluctant in offering loans to the type of businesses considered to be risky. Another common reason why most businesses loan applications do not go through is because they lack a clear purpose or a plan on how they want to spend the money from the loan, the financial institution will only finance a business that has clear plans that are likely to generate funds in future that will be used to finance the loan.
A financial institution needs assurance that your business will be able to generate enough income part of which will be used to repay the loan installments and a young business is unable to provide this hence denial of that loan application.
If a business gets approved to get a loan, then it’s future is likely to get a turnaround especially if they require invest it well, a business loan goes a long way in injecting capital that can be used to to purchase additional assets for the business. Business loans unlike other loan types for example personal ones, they have been subsidized by the government hence attract a lower interest rate and this is an advantage to the small businesses.
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