If you want to succeed with your business, you have to know the facts and act on it. Let us help you get a clear idea on small business loans and if they’re really as hard to get as they say!
Myths On Small Business Loans And Why You Shouldn’t Believe Them
Business loans are hard to get
Financing options on the market have bloomed since the past few years. Applying for a small business loan isn’t a tough task but it does ask for some preparation. You have to make sure that all your accounts are transparent and ensure that you maintain quality liquidity that aids during the loan application process.
If you’re able to prove to the lender that you’ll be able to pay the debt back in consistent premiums with no fallbacks of any sort, your application will get approved in no time. You don’t have to be completely white washed to get your loan amount sanctioned but you have to show trust, only then can you put your proposal ahead.
Getting a business loan is easier than getting a personal loan.
2.It is a long process
Any loan amount below the million dollar mark can typically get approved within a few days. Let me be clear, business loans are relatively easier to get as compared to personal loans. As personal loans don’t allow for much space to reason, lenders ask for contingencies in such cases.
But with a business loan, there is a project plan, schedule, credit history, expenditure plan, revenue adjustment for debt repayment and so on that lenders find very promising and if all the papers are in order, they’ll sanction the amount in a few days.
The best way to speed up your loan approval process is to be ready ahead of time.
3.You need perfect credit
It is needless to say that business owners need to have a clear and reasonable credit history of both personal and business. But the big myth out there is that the credit history needs to be spotless!
A good credit score improves your odds of getting a small business loan but a bad credit score cannot deny you the same opportunity, remember that! Even if you have a less than perfect credit score, you can avail all the benefits of the loan program if you have your documents in order.
The reality is that your credit score affects the type of business loan you can avail. For example, smaller amount loans and short-term business loans are far easier to sanction for a reasonable credit score. But if you’re asking for a bigger amount, please accept the fact that you’ll need a better credit score of 700 and above.
Start improving your credit score already. It’s a journey, not a destination.
4.Small Business Administration (SBA) provides direct loans
SBA is at the center of the small business industry in the U.S. But it also holds some misconceptions as many believe that businesses borrow money directly from SBA.
The fact is that it neither lends any money nor accepts repayment of any sort. It doesn’t form loan programs that we’ll look at below.
The SBA’s main duty is to work with local institutions to lend money to small businesses. It adds authority to third party lenders and takes aid from federal laws to help institutions cover losses if businesses aren’t able to repay the loan.
Your business has to meet the expectations of SBA for approval of loan from local financial institutions.
5.Funds aren’t available
It is quite normal to believe the myth that institutions don’t have funds to lend, amidst global pandemic. This kind of thinking puts many businesses out of order without even applying for a loan.
But the truth is that getting a business loan today is far easier than a decade ago and there are multiple financial options available on the market. You don’t have to put on a sad face just because one institution closed its doors for you. Keep looking out.
See if you’re making a mistake while filling the loan application form. Ensure all the financial information is up to date. Include your P/L statements, tax return statements, balance sheets when you’re applying for a loan.
Ask yourself, is your business worth investing during a pandemic?
6.Banks are worst lenders
Conventional financial centers have got a bad reputation just because there are other third party lenders that lend money with less obligations. Don’t think that banks are your enemies, they’re just not your best friend!
They have to trust you to fund you, it’s as simple as that! In fact, an established firm looking to expand its operations with a business loan is most likely to get funded by a banking organization.
Don’t study loan programs, study your business. See what your business requires. Does it require money at different intervals of time in the future? See if banks or local lenders can satisfy this requirement.
If you need short-term money repeatedly, you are better off with local third-party lenders. If you need money for acquisition purposes, go to the bank.
7.Higher the amount, lower the chances
Think as a lender. Would you give out smaller loans or bigger loans? Which reaps maximum benefit? Exactly, bigger loan amounts reap bigger interest rates. Thus, it is a myth that if you go around asking for a big amount, you’ll be put off!
The amount only aids a little in the approval process, but it is the strategic planning of how you’re going to spend the money that actually matters.
One good tip is to only ask for money that you need, not one penny less nor more. Amount doesn’t matter, how you spend it matters.
8.Only large amounts get financed
As I’ve mentioned earlier, lenders actually prefer larger loans that are worth their time and effort. But there are a number of options or loan programs out there for small businesses that don’t focus on just huge numbers.
Microloans are a new concept and they help tremendously. Just like short-term loans, SBA microloan programs help you provide loans upto $50,000. It can be used for management as well as technical support such as working capital, equipment, inventory, and much more.
Interest rates for microloans offered by the Small Business Administration varies anywhere between 8% and 13%.