Obtaining a loan for your small business is a great way to boost investment and even grow your business when the time is ripe. You might have heard some grumblings about small business loans: they’re hard to obtain; your credit has to be flawless; don’t ask for too much money or you’ll be denied. Fortunately, these prominent myths surrounding small business lending aren’t necessarily true.
It’s important to manage debt properly, but doing so can help grow your business at a faster rate than scrimping and saving. To help you obtain a small business loan for your company, Business News Daily spoke with finance experts to debunk six common myths about getting a business loan.
Myth No. 1: Getting a small business loan is the hardest thing you’ll ever have to do.
Like other forms of financing, obtaining a small business loan is all about preparation. Ensuring your books are transparent and you maintain the reserve liquidity to encourage the lender that you’ll be able to service your debt on time and consistently will lead to success. And experts agree the best way to avoid unnecessary snags is to prepare ahead of time for the application process.
Myth No. 2: You must have perfect credit to get a small business loan.
Low credit scores are a concern for some lenders, but banks aren’t the only lenders out there. Alternative and private lenders are often able to offer more flexible terms, including which level of creditworthiness they can approve. Alternative lending sites tend to base lending decisions on the financial realities of a business rather than the financial history of business owners.
Myth No. 3: The worst way to obtain a loan for your business is through a bank.
Just because you can obtain financing elsewhere, doesn’t mean conventional lenders and bank loans are not for you. Sometimes, a bank offers exactly the funding option you need. In fact, for established businesses looking to grow at a moderate rate, traditional bank funding is generally a great option. It’s when a business doesn’t fit those criteria that business owners should consider shopping around. To decide whether a bank loan is right for your business, research both traditional loans and alternative funding sources. It’s also important to know your business inside and out.
If you are growing like crazy and you know you will need to keep increasing your loan size by large increments each quarter, then entertain a non-bank lending partner, as banks may not be able to keep up with your needs.
Myth No. 4: The more money you ask for, the less likely you are to be approved for a small business loan.
The requested principal amount of the loan should not have an adverse impact on whether or not you’re approved. Lending institutions are generally prepared to fulfill large financing requests for the right borrower; it’s more lucrative for them in the long run anyway. Don’t be afraid to ask for the amount of money that you really need!
A business should apply for the amount it needs — no more and no less. Officials recommends considering both how much money you really need to grow your business, and how much money you can afford to pay back every month.
Myth No. 5: The most important factor to look at is the interest rate.
It’s easy to hyper-focus on the interest rate of the loan. Essentially, the interest rate is telling us just how much this money is going to cost us by the end of our repayment period. It’s certainly a crucial piece of information, but it’s just one aspect of the entire deal.
Although interest rates are an important aspect to consider when choosing a lender, there are many other factors to keep in mind like what the terms of the loan are, how soon you need to repay the money, and what you can use the loan for.