Major Challenges in Fundraising for Working Capital
Running a business is not just about profits—it’s also about keeping the cash flowing. Whether it’s for purchasing raw materials, managing payroll, or handling daily operational costs, working capital is the fuel that keeps everything moving.
But here’s the reality:
Getting funds for working capital isn’t as smooth as it sounds, especially for businesses that have been operating for a few years but now face challenges due to past credit behavior or multiple loans.
Let’s break down the major challenges faced by businesses while raising funds for working capital—and what can be done to overcome them.
1. Multiple Active Loans — A Burden on Eligibility
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One of the most common issues we see is business owners juggling 8 to 10 active loans at once. While they may have taken each loan for different reasons—like purchasing stock, clearing vendor dues, or covering GST payments—this ends up creating a heavy EMI burden.
Why it’s a problem:
- Financial institutions view too many active loans as a credit risk.
- It reduces the eligibility for new working capital loans.
- It shows a lack of planning in cash flow management.
Solution: Before applying for new funds, businesses should consider consolidating existing loans or closing high-interest loans early. A cleaner loan history improves the chances of approval and better terms. Ideally fund raising excercise should be kimited to twice in a financial year.
2. EMI Bounce and Missed Payments
Regular EMI defaults—whether due to low funds or oversight—are a major red flag for lenders.
Consequences:
- CIBIL score drops, often below the acceptable threshold.
- Even NBFCs become hesitant to lend further.
- The business owner may get blacklisted in internal systems of banks.
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Solution: Adopt disciplined repayment habits. Set up auto-debit or reminders. Even a single bounce can cost more than just a penalty—it damages long-term funding capacity.
Even when a business is running well, its financial records may not reflect the same strength. Many SME owners do not maintain clean bank statements, profit/loss statements, or regular GST filings.
- Loan approvals depend on verifiable revenue.
- Incomplete or mismatched documents lead to rejection or low sanction amount.
Solution: Keep your banking transparent, avoid cash-heavy operations, and file all statutory documents on time. Financial hygiene isn’t just good practice—it’s loan eligibility fuel.
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4. Mismatched Loan Purpose and Use
Often, businesses apply for a working capital loan but end up using it for something else—like expanding a shop, investing in equipment, or personal emergencies.
- NBFCs/banks often verify post-loan usage.
- If found misaligned, future funding can be blocked.
Solution: Be clear and honest about the purpose of funds. Align usage with what was declared. If business expansion is your goal, apply for a term loan instead of a working capital loan.
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5. Limited Knowledge About Loan Types
Many business owners are unaware of the various types of working capital loans available. They often go for unsecured options at high interest, when a secured loan (like loan against property or receivables) could give more breathing room.
The Downside:
- Higher monthly EMI due to higher interest
- Missed opportunity to access larger funds at better rates
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Solution: Understand your options:
- Unsecured Working Capital Loans: Quick, but costly
- Secured Working Capital Loans: Slightly slower, but higher amounts at lower rates
Making the right choice can reduce pressure in the long term.
6. Low Business Turnover Visibility
Even if a business is making ₹50 lakh+ annually, improper routing of payments can hide this turnover from banks. For example, if payments are received in multiple personal accounts or via cash, it lowers the visible business income.
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Impact:
- Lenders may assume low business activity
- Smaller loan approvals or complete rejections.
Solution: Route all payments through the official business account. Visibility builds credibility—and credibility brings capital.
7. Inconsistent Business Cycles
Concern:
- Monthly income inconsistencies make EMI repayment look risky
- Lenders want predictability in cash flow
Solution: Maintain a strong average bank balance even in lean months. Submitting quarterly revenue reports with context can also help lenders understand the business cycle better.
Final Thoughts: Be Fund-Ready, Not Just Fund-Hungry
Fundraising for working capital isn’t only about showing need—it’s about showing preparedness.
If your business:
- Has a consistent turnover above ₹50 lakhs
- Can manage past loans efficiently
- Maintains clean documents and discipline
…then you stand a much higher chance of getting the right funds, at the right time, with favorable terms.
Pro Tip: Before applying for working capital funds, review:
- Your CIBIL and business credit score
- Your loan-to-income ratio
- Your existing EMIs and repayment behavior
Sometimes, small corrections can lead to big approvals.
Need Guidance?
Getting stuck is normal. Getting help is smart.
Reach out to a financial consultant like NKB Kredit, who can audit your current loan load, repayment record, and help you unlock better working capital options.
Frequently Asked Questions (FAQs)
Working capital loan is a type of loan or credit facility that helps businesses cover their day-to-day operational expenses like payroll, inventory, rent, and vendor payments.
Common issues include poor credit score, multiple existing loans, irregular GST filing, low average monthly bank balance, or insufficient documentation — all of which affect loan approval.
Typically, the business should be 2–5 years old, have a minimum turnover (like ₹50 lakhs or more), regular cash flow, and a good repayment history. Some lenders may also check your CIBIL score, ITR, and bank statements.
Yes, but it depends on your repayment track record, loan-to-income ratio, and how well your existing liabilities are managed. Multiple unpaid EMIs or bounced cheques can reduce your chances.
- Secured loans require you to pledge collateral like property or equipment.
- Unsecured loans don’t require collateral but may come with higher interest rates and stricter credit checks.
It usually takes 10-15 working days, depending on your document readiness and the lender’s internal process. With the right guidance, the process can be faster.