Major Challenges In Fund Raising
Major Challenges In Fund Raising for any business house is to raise sufficient funds to expand, which prevents it from growing and realising its full potential. Through various government initiatives. The process of raising funds is being simplified by agencies, but numerous challenges remain. The purpose of this blog is to figure-out the ways and measures to overcome these challenges.
Lack of Awareness:
In spite of displaying commendable entrepreneurial tenacity, many entrepreneurs lack the financial awareness to make sound business decisions. This can lead to uneven working capital ratios and suppress credit scores quite often. Furthermore, raising funds from any lender without managing tenure and pricing can result in stress on repayment capacity, resulting in blockage of further flow until the terms of those loans are restructured.
With the invention of latest technology & algorithm assessment, most entrepreneurs are unaware of the parameters that NBFCs & Institutions are using. Therefore, it is advised to read all funding proposals carefully before accepting any.
Additional Collateral & Risk appetite constraints:
Most conventional lending alternatives require business owners to meet strict eligibility criteria and to provide collateral. On top of that, the loan processing and subsequent crediting of funds is a long and tedious process. In the beginning, small business owners use their savings to start out, and then they extend this out to all their assets once their business starts to make profits.
In the event an entrepreneur plans to expand his business because of a good prospectus, he will have to face additional collateral requirements & lenders may insist on additional collateral, resulting in the business being on the verge of collapse because of a lack of working capital.
As a result, it is crucial to identify the right mix of institutions that understand business needs quickly and are willing to extend funds as credit lines or term loans without collateral to support at the point of need.
Compliance:
In traditional borrowing, banks usually request recurring monthly reports, which are somewhat tedious for small business houses due to their lack of knowledge and resources. Thus, they are ineligible to receive higher funding for their operations. Additionally, since these businesses don’t have a credit rating, they are ranked in a higher risk category, so banks are reluctant to take higher risks with them or impose stricter requirements on them.It is in such a scenario that an entrepreneur should select different lenders or banks with the capacity to lend to such risk profiles to avoid undue delay in the process.
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