The Biggest Business Financing Myths that Mislead Small Business Entrepreneurs
For many entrepreneurs or investors, it often becomes tough to separate fact from fiction when it comes to business financing. Even more, the process of acquiring a small business loan may feel intimidating for a new business owner. Myths that surround business financing are mainly what makes most entrepreneurs fear to apply for small business loans are. It is essential to demystify the myths from the get go. That will help many some intending to get any form of business financing but fears the mythical repercussions. Below, our experts have the listed five common myths and corresponding truth.
You should have perfect credit
Note that this is one of the bigger business financing myths out there. This myth purports that entrepreneurs have to have a spotless credit history to meet the criteria for a small business loan. Even though having good credit certainly improves your odds of getting a loan, it is not a strict requirement.
The truth is that you do not need a squeaky-clean credit history just to get your application accepted. In addition, credit score requirement varies depending on the kind of loan you are applying. For instance, Small Business Association (SBA) loans often approve loans for entrepreneurs with less-than-stellar credit.
One can only finance large amounts of money
Many small business owners in the US and around the world incorrectly assume that they are not worth of getting a business loan. They tend to think that loans are only appropriate for those with huge businesses. Such entrepreneurs even distance themselves with bank loans with unjustified reasons.
Traditional banks tend to prefer large businesses for their business loans. However, it is worth noticing that there are many options for small businesses out there. Presently, banks have shifted from this and now want to grow with small businesses.
Getting a loan takes a long period
Some people believe that the process of applying for a business loan may take ages. This makes them fear that their investment idea will be overtaken by events. Instead, they seek for alternative financing solutions to avert the loan process.
The fact is that modern banks are very fast to complete loan requests. It is true that traditional banks required entrepreneurs to compile countless records and wait for months. This has since changed to a very short period, even though it may depend on the loan amount. Some banks can process a loan of $100,000 in less than two days. For a loan of not less than one million, some banks may even take less than two weeks.
Collateral is essential for every business financing
Traditional banks required collateral for every loan. Most notably, collateral is a scary part of the borrowing process for some small business owners around the globe. Tying up some of the money already in hand as collateral in almost self-defeating. To many entrepreneurs, collateral does not make sense because taking a loan implies that one is in a difficult financial position.
Presently, banks do not require collateral for every business-financing loan. Many business loans in the US do not require collateral. For example, there are unsecured business loans, unsecured business lines of credit, business credit cards, and merchant cash advances. None of these financing solutions requires entrepreneurs to put up collateral to access cash.
Business financing options are all similar
Often, people looking for business loans have the notion that all business-financing solutions are similar. They tend to think that one can access any business loan with the same process, period, and have the same requirements.
The truth is that business loans are not similar. Every loan has different requirements. For instance, a loan for inventory will have different requirements from a loan to acquire new business premises. Essentially, the terms of a business loan depend largely on the intention for the money one is borrowing.
One cannot get a loan to start a business
There is a myth that has been propagated for several decades. People believe that loans are only for existing businesses. Moreover, there is a notion that an existing business has a longer financial record of accomplishment and good credit history. Nonetheless, that does not mean that lenders do not open the vault for newly established businesses.
The SBA Microloan Program, for instance, is startup-friendly. It offers business loans up to $50,000 to newly established businesses. It is also prudent to note that the SBA partially guarantees loans on behalf of the borrowing entity. Equipment loans are also a great financing option for startups since they do not require collateral. A business credit card is another capital solution that provides new business owners access t working capital.
When it comes to business financing, it is prudent to have the facts right. Kindly get in touch with us if you want to get a business loan and feel you do not have all the facts. Our experts are ready to help!
