A steady cash flow is as vital for an upcoming venture as are a sound business strategy and a strong team to implement the strategy. Likewise, for Micro, Small and Medium Enterprises (MSMEs), a continuous cash flow helps sustain the venture, while also providing scope for growth and progress. That being said, it is likely for MSME Loans to face shortage of funds during the growth phase. It could happen that the business owner does not have a contingency fund for such times- so, what can be done to overcome this situation?
Business loans are known to fulfill all financial needs during times of economic crises. They are provided by banks and Non-Banking Financial Companies (NBFCs) after considering a few important factors- what are those factors, let us find out here:
Credit Profile of the Business
All lenders assess the credit profile of a business before granting approval on a loan application. They look into the past debt history, which includes all loans availed and how regularly the repayments were made. Defaulting on repayments in the past can affect chances of approval on a business loan in the present and future.
Status of Cash Flow
Banks and NBFCs also check the cash flow of a business. The annual turnover of the business is assessed to see if the loan availed can be repaid in time. They check the profits, losses and the overall debts that have to be repaid to ascertain if a business is eligible to borrow a particular amount and repay the same.
The Type of Business
Financial institutions evaluate the type of business before lending money to them- they have different lending terms for defensive businesses, growing businesses and for cyclical businesses.
Also Read: Information The Bank/ NBFC Needs To Consider An MSME Loan
Aman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management.