Thinking of using small business loans to help grow your startup or existing business. Small business loans are a great way to get the funding needed to enter a new venture, expand your business, or develop a new marketing plan. These are not the only ways loans are used, but there has been a small growing misconception that must be addressed small business loans. There are several small business loan myths that need busting, and that is exactly why we’ve developed this list of small business loan myths. We’re going to hang them out for everyone to see. Getting a loan for your small business is not as hard as it’s made out to be, and we will crack these small business loan myths wide open.
Let’s face it, debt management is important and correctly implementing a winning plan will help your business grow quickly and more effectively than scraping funds and saving pennies for the next business venture. Following along and find out how everything you thought you knew about small business loans has been wrong.
Table of Contents
- First Myth: Banks Make Small Business Loans a Breeze
- Second Myth: If Your Credit Is Not Perfect the Forget About a Small Business Loan
- Third Myth: Qualifying for small business loans is Rocket Science
- Fourth Myth: Bigger Keep it Small or Expect a big fat NO
- Fifth Myth: Nothing is Worse than a Small Business Loan from a Bank
- Sixth Myth: Nothing Matters But Your Interest Rate
First Myth: Banks Make Small Business Loans a Breeze
For startups and small business owners, going through a bank for a small business loan can actually turn out to be a bigger hassle than it is worth, especially since most small business loans are in fact small, in comparison to other business loans. The lengthy loan process through the bank is typically more lucrative for companies looking to borrow much larger amounts with longer repayment periods. This myth becomes busted because, with third-party and alternate private lenders, the loan process is much shorter and usually involves fewer hurdles to jump with flexible options to fit a wide range of business financing needs without needing the help of a bank.
Second Myth: If Your Credit Is Not Perfect the Forget About a Small Business Loan
This is probably one of the biggest small business loan myths out there. It is commonly understood that in order to secure a business loan, you had to have a perfect credit score, but that too is not true. Yes, it is true that those who bolster a low credit score, raise concern and alarm to lenders, especially banks, which will be fast to turn down someone with a less than favorable credit score. Fortunately, banks are not the only financial lenders available for a small business loan.
There is a vast ocean of alternative, private, and third-party lenders that often times are able to provide more customizable options with terms, interest rate, and other factors which also goes into what level of credit is worthy enough to approve for lending. Lending sites offer a powerful tool for small business funding that also helps them assess loan terms from a financial reality of business performance, rather than basing it on past history of business owners. Lenders will examine business performance, industry conditions, as well as business cash flow. Your credit doesn’t have to be perfect to get a small business loan.
Third Myth: Qualifying for small business loans is Rocket Science
This is far from true and similar to other methods of financing, procuring a small business loan really boils down to just preparing yourself prior to applying. Keeping your ledger and books open, organized, and transparent in addition to making sure you hold reserve liquidity in order to show lenders your capability of addressing your debt in a timely and on-time manner. Showing a plan for repayment and success goes a long way. As for those chattering about these particular small business loan myths, the difficulty of getting a loan is not hard, nor is it difficult to those who plan.
Fourth Myth: Bigger Keep it Small or Expect a big fat NO
This is a pretty ridiculous myth that needs to be cracked open for sure. It is said that the more money you ask for, the great risk you run of being told no. Does that make any sense? If your books are in order, then why not go big or go home. Lenders, especially bank prefer loaning larger sums of money. Why? They will make more money on the loan of course! If your loan plan can support the repayment, lenders and banks will have no problem submitting to your larger demands.
Fifth Myth: Nothing is Worse than a Small Business Loan from a Bank
Sure, there are tons of private and third-party lenders for small business owners to get financing from, but does that really make them better than a bank loan? You’d be surprised at the different funding options a bank can offer. In some cases, a bank will have the exact plan and financial assistance program your business needs in order to grow. Certain industries and growth plans are more suitable for bank loans. For those who project their companies to grow at a steady rate, then seeking funding from a bank is a reasonable request, but for some industries, especially those that can grow and expand very quickly, banks may have a harder time keeping up with funding than alternate lenders. Banks are not the worst place to get small business loans; it is just a matter of whether your business and the bank are a good fit.
Sixth Myth: Nothing Matters But Your Interest Rate
This myth is more of a subjective point and urges the masses to look past all other loan factors and hone in on the interest rate alone. Yes, the interest rate is very important, but that is mainly because it lets you know the total dollar you are going to be paying back for the loan. There are other important factors to look at like the length of the term, any attached stipulations to what the money can be spent or used for, and other term associated with loans.
Yes, by all means, keep your eye on the interest rate, but your business will benefit more when looking at the other terms to ensure your company is a perfect fit. As you can see these small business loan myths are easily overcome and provided reasons why both banks and third-party alternate small business loans should not be feared but embraced. Grow your business like you mean it with funding you can count on.
Looking for funding options to satisfy the expected growth of your startup up? Check out FinImpact’s list of Best Small Business Loans to compare the top lenders for your next business venture.