Before taking on that risky move of getting a business loan, it’s important to get the misconceptions about the process out of the way. My Business debunks some of the top business loan myths and uncovers the truths behind them.
Contemporary lending standards have definitely changed over time, especially when alternative and non-bank lenders have popped up across various markets.
Of course, this makes it easier for small business owners to borrow money. But there are a lot of misconceptions which can be dangerous for small business owners.
Here are some of the most common small business loan myths and the truths behind them:
Myth #1: Businesses on the brink of failing are the only ones in need of loans.
Fact: Business loans can benefit small businesses in many ways.
One of the main reasons why some small business owners have second thoughts on borrowing money for their business is due to the misconception that resorting to these business loans only means that a business is in financial trouble.
Business loans can actually be used for a lot of other purposes—ranging from acquiring new equipment to financing expansions.
As running a business always involves having to shell out money for a variety of purposes, knowing how to get a business loan is very beneficial for small businesses.
Of course, paying the business loan would definitely increase the business’ monthly expenditure. It is important to take out a small business loan only when the business’ needs really calls for it and if it would be used to further the development of the business.
Myth #2: Banks are the only ones that can provide business loans.
Fact: Alternative lenders can also provide business loans.
It’s pretty much common knowledge among business owners that traditional banking institutions are the primary providers of business loans. However, there are actually a lot of options available for small businesses who are looking for such loans. Some of these can include alternative lenders, private lenders and invoice factoring.
Alternative lenders also tend to be more suitable for businesses who plan to borrow only small amounts - say between $5,000 and $25,000. It is relatively easier to get an approval for smaller amounts, as these loans usually involve lesser paperwork compared to applying for a business loan with a traditional bank lender.
Myth #3: Bad credit scores equals lesser chances of loan approvals.
Fact: Alternative lenders don’t necessarily mind bad credit scores.
Traditional bank lenders tend not to accept anything less than a perfect credit score when approving loan applications. This strict standard makes it harder for new and small businesses to get their business loans approved.
But an imperfect or bad credit score doesn’t automatically mean that business owners don’t have any other options when taking out a loan—alternative lenders generally don’t really mind if a borrower has a less-than-perfect credit score.
Alternative and non-bank lenders have ‘easy to get’ bank loans mostly because they are more interested in the business’ cash flow situation and annual revenue.
Regardless of the business owner’s credit score, if the business satisfied both of these conditions their loans would most likely be approved.
Myth #4: Securing a small business loan takes a very long time.
Fact: Small business loans can get approved within a few hours.
The misconception that business loans take a very long time to get approved is one of the main reasons why the majority of business owners aren’t keen on the idea of applying for loans for business purposes.
Modern fintech advancements have made it easier for business loans to get approved within a few hours—thus owners get funding in just a few days.
Business owners have to keep in mind that while non-bank and alternative lenders have faster loan approval rates, the same can’t necessarily be said for traditional bank lenders.
Traditional lender approval rates can range from anything between a few weeks to two months. If a loan is for urgent business-related purposes, non-bank lenders are often the best bet for any small business owner.