A Beginner’s Guide to Loans for Business Growth

1. Not Separating Business and Personal Money

This is a very common issue among small business owners.

Many people use personal credit cards or loans for business payments like supplier bills or urgent expenses. When business income dips, personal EMIs get delayed — hurting your personal credit score, which lenders also consider for business loans.

Better approach:
Maintain separate accounts for business and personal use. Take business loans only for business needs and keep personal credit for personal expenses. This keeps your financial records clean and easier to track.

2. Delaying EMI or Credit Card Payments

Some owners feel that a short delay in EMI won’t matter much. In reality, even one missed or late payment can pull your score down.

During slow seasons, EMIs often take a back seat to salaries or rent, but lenders see this as repayment stress.

Better approach:
Always pay EMIs on time. Use auto-debit where possible and keep a small buffer in your bank account.

3. Overusing Your Credit Limit

Even if you pay on time, regularly using most of your available credit limit can hurt your score.

For instance, if your card limit is ₹2 lakh and you usually spend ₹1.7–₹1.8 lakh, it signals financial pressure.

Better approach:
Try to use only 60–70% of your credit limit and keep some unused credit available for emergencies.

4. Applying for Loans at Too Many Places

When funds are tight, many business owners apply for loans across banks, NBFCs, apps, and websites at the same time.

Each application results in a credit enquiry. Too many enquiries in a short period can lower your score and make lenders cautious.

Better approach:
Apply only where your chances are strong instead of applying everywhere blindly.

5. Never Checking Your Credit Report

Many MSME owners never review their credit report, assuming everything is correct. But mistakes do happen.

Examples include:

• A loan shown as active even after closure
• EMIs marked overdue even after payment
• Incorrect personal or business details

Such errors can reduce your score without you realising it.

Better approach:
Review your credit report at least twice a year and raise corrections whenever needed.

6. Closing Old Credit Accounts Too Quickly

Some people close old credit cards or loans thinking it will improve their score. In reality, older accounts show long-term credit discipline and stability.

Closing them can shorten your credit history and negatively affect your score.

Better approach:
Keep older, healthy accounts active with limited use and close only those that are unnecessary or costly.

7. Having No Credit History at All

Avoiding loans entirely may seem safe, but it also means lenders have nothing to judge you on.

Without a credit history, getting your first business loan becomes difficult.

Better approach:
Start with small loans or a basic credit card and repay responsibly to build your credit record gradually.

8. Becoming a Guarantor Without Thinking It Through

Many business owners become guarantors for friends or relatives without understanding the consequences.

If the borrower defaults, the responsibility shifts to you — and your credit score suffers even though you didn’t take the loan for yourself.

Better approach:
Agree to be a guarantor only if it is absolutely necessary and you are comfortable with the repayment risk.

9. Relying Too Much on Short-Term Loans

Short-term loans can help during emergencies, but using them again and again for daily business needs shows weak financial planning.

It also creates heavy repayment pressure and reduces lender confidence.

Better approach:
Plan your cash flows better and use structured business loans for growth, not just survival.

Your credit score grows stronger with financial discipline and smart borrowing.

Small improvements today can prevent major financial hurdles tomorrow.

Build your credit before you urgently need it, and your business will move ahead smoothly.

At Arka Fincap, we believe in supporting businesses not just with loans, but with the right financial guidance — so your business can move ahead with confidence.