You applied for a business loan and your application was approved after a lot of back and forth with the bank. Finally, you received the funds in your account and set about implementing the changes that your organization needed. However, six months down the line, you are paying the loan EMIs every month but the positive change in operations and profits that you expected have not materialized. Now, you are left with a debt to service and nothing to show for it. Have you ever wondered why some of your business loans never work out the way you planned?
Today we are sharing 5 things which may have gone wrong with your business loan planning.
- Deciding to get a business loan: Sometimes, the decision of applying for a business loan without actually needing it can leave you with unnecessary debt. If you were lured by a lucrative loan offer and simply applied for the sake of it, then it’s unlikely that the investment will boost your business in any significant way. Business loan planning is a strategic exercise that requires assessment of all your finances, marketing exercises, operational capabilities, inventory management, and customer demand. If there is any gap in either of these departments, which requires additional capital infusion, and if you do not have that kind of money in your business bank account, only then should you think of business finance.
- Amount of business loan: On the other hand, if your business actually requires business finance, and you fail to assess the amount needed for the purpose, it becomes another missed opportunity. Here, the equation works in both ways, both under assessment and over assessment of business loan requirement are detrimental for your enterprise. First, if you under assessed the capital needed to scale up operations or streamline working capital, then surely you would not be able to get the desired results. Second, if you over assess the business loan requirement and get a loan for that amount, then you are left with surplus amount in your bank. While this may feel like a good thing, it is not. You now have a bigger business debt to service and having an amount that is surplus to requirement may lead to superfluous spending.
- Spending the loan money in one go: In this instance, your business might have a genuine requirement, and you may have applied and gotten a loan as per your business needs, but if you fail to stage the loan spending properly, the desired results may not materialize. When you put money in something new, it should be done in a stop and go manner to assess the actual impact of the investment. Having a plan in your head is one thing and operationalizing things on ground is another. If you spend the loan money in one go, you will not be able to reset your strategy if something goes critically wrong during implementation. Hence, leaving you with a debt and an unfinished task.
- Unplanned debt consolidation: Apart from operational planning, sometimes business loan planning for debt consolidation can also go wrong if you fail to recognize the patterns in your debt repayments. For example, if your business has a number of debts, all divided into EMIs, and you take a debt consolidation loan without optimizing its tenure as per your total debt, then you will end up with a huge monthly EMI – something which you were trying to avoid in the first place. Similar things can happen with the interest rate and principal sum of your debt consolidation loan as well. Therefore, if your debt consolidation loan is not working as planned, it might be a result of your failure to consider the principal amount, business loan interest rates and tenure properly.
- Using the loan for a different purpose: If you took a business loan for expanding operations but used the funds fully or partially for marketing purposes or vice versa, it will definitely spell trouble for your enterprise. In the first case, you will have an expanded customer base but no product to show for it, and in the second instance, you will have inventory but no market to sell it. All we are trying to say here is that, when you plan a business loan, you have an objective in mind. But if you divert funds to other things as they come your way, then the original objective gets lost in translation and you end up with a debt.
So, when you apply for a business loan online or offline, plan ahead, use the funds wisely, and do not divert your attention from the principle objective. However, it is never too late to turn things around if your business finance is not working as planned. There alternate ways to get business finance these days which can help you secure instant business loan to fix things up. For example, apply for a business loan with Lendingkart and get a business loan up to ₹ 1 Crore within 3 days. Lendingkart offers faster processing, fair interest rates and flexible repayment using business analytics that optimize each loan for individual business requirements. To know more, visit us at www.lendingkart.com.