Major Challenges in Fundraising for Secured Business Loans in India
When it comes to business financing, secured loans are often seen as a safer and more affordable option for entrepreneurs. Since these loans are backed by collateral — such as property, equipment, or fixed deposits — lenders consider them less risky. As a result, they offer lower interest rates and higher loan amounts compared to unsecured loans.
However, even though these loans are “secured,” the process of fundraising through them isn’t always smooth. Business owners, especially small and medium enterprises (SMEs), often face multiple roadblocks when applying for secured business loans in India.
Let’s take a closer look at the major challenges in raising funds through secured business loans and how businesses can overcome them.
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What is a secured business loan?
A secured business loan is a loan where the borrower pledges an asset or property as security to the lender. In the event of default, the lender has the legal right to seize the collateral to recover the outstanding loan amount.
Common types of collateral include:
- Commercial or residential property
- Plant and machinery
- Gold or fixed deposits
- Inventory or receivables (in specific cases)
These loans are generally preferred by lenders due to their lower risk profile. But from the borrower’s perspective, several hidden challenges need to be addressed before approval.
8 Major Challenges in Fundraising for Secured Loans
1. Valuation Disputes of Collateral
One of the first hurdles business owners face is the mismatch between the expected and actual valuation of collateral. Banks and NBFCs usually assign third-party valuers, who tend to keep valuations conservative. As a result, businesses receive a lower loan amount than anticipated — even if the asset is of high market value.
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Lenders do a detailed title verification of the pledged property. If there are any disputes, unclear ownership, legal encumbrances, or incomplete paperwork, the loan application may be delayed or outright rejected. In many cases, inherited or jointly held properties become a bottleneck.
3. Lengthy & Complex Documentation Process
Unlike unsecured loans, secured loans require multiple rounds of documentation:
- Property documents (title deed, possession certificate, tax receipts)
- Business documents (GST returns, ITRs, financials)
- KYC proofs of all owners
- Property valuation and legal reports
This can overwhelm small business owners who lack professional help.
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4. Low Liquidity of Collateral Asset
Some assets — especially rural properties or specialized equipment — may not be easily marketable in case of default. Lenders hesitate to approve loans against such collateral due to resale risk, even if the asset value is high.
5. Poor Credit History Still Matters
Even though collateral is pledged, credit score and repayment history of the borrower still play a major role. A low CIBIL score or past loan defaults can impact the lender’s decision, despite the presence of security.
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6. Time-Consuming Approval Process
Secured loans often take 2–4 weeks (or more) due to property valuation, legal vetting, document checks, and internal risk assessment. Businesses needing urgent funds may find this delay problematic — especially compared to faster NBFC options or unsecured loans.
7. Business Vintage & Financial Stability Requirements
Most banks, NBFCs and financial institutions want the business to be operational for at least 2–3 years with stable income. Startups or recently launched ventures find it hard to meet this criterion, even with collateral in hand.
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8. Loan Amount Limit Due to LTV Ratio
Even if your asset is worth ₹1 crore, you won’t get the full amount. Most lenders follow an LTV (Loan-to-Value) ratio — typically 60–75%. This means you’ll only be eligible for ₹60–75 lakhs, no matter how high your funding need is.
How to Overcome These Challenges?
While the above challenges may seem intimidating, there are ways to work around them with the right strategy and guidance.
Maintain Clear Documentation
Ensure that your property documents, tax returns, and business records are in order. Resolve ownership or title issues before applying.
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Improve Credit Score
Pay off old dues, avoid multiple loan applications, and maintain a healthy bank statement.
Consult a Loan Expert or Consultant
Consulting a loan expert or financial consultant can significantly ease the fundraising process. From identifying the right lenders to preparing documentation that aligns with valuation goals, expert guidance can make the journey faster and more efficient.
Be Realistic with Expectations
Understand the LTV rules and loan limits before planning your financial strategy. Keep alternative funding options ready.
Final Thoughts:
While secured business loans offer several benefits such as lower interest rates and higher loan amounts, they also come with their own set of challenges. From property-related issues to delayed approvals, businesses must prepare thoroughly before applying.
If you’re a business owner struggling to raise funds through a secured loan, professional help can make all the difference. At NKB Kredit, we’ve helped hundreds of SMEs get approved for secured loans with minimum hassle.
Need Help? Let’s Talk.
Whether you’re facing loan rejection or want to improve your chances of approval — reach out to us at www.nkbkredit.com/secured-business-loans for expert guidance.
Frequently Asked Questions (FAQs)
It usually takes 15–30 days, depending on property verification and document availability.
It’s difficult unless you have strong collateral and other guarantors. Most lenders prefer at least 2 years of business history.
No. You can mortgage a part (demarcated portion) of your property, subject to lender approval and valuation.
Yes, you can get up to 200% of your property’s value as working capital, depending on the lender and the structure of the loan.