7 Small Business Loan Myths Busted, business startup loan.#Business #startup #loan

7 Small Business Loan Myths Busted

You may be intimidated by the idea of obtaining a small-business loan. In fact, you may have heard that it s nearly impossible to get approved for one. But you shouldn t believe everything you hear.

Business News Daily spoke with finance experts to debunk seven 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.

Obtaining a loan for your small business is no easy feat, but it doesn t have to be an insurmountable challenge. Small business lending experts agree that the best way to avoid trouble is to prepare for the challenges that the application process may present.

A lot of the frustration around obtaining small business financing can be eased by doing your due diligence, said Michael Adam, founder and CEO of Bankmybiz, a site that connects business owners with business funders. Be prepared, and have all your documents ready to present to lenders. [See Related Story: Small Business Financing Trends: What You Need to Know]

Myth No. 2: You have to have perfect credit to get a small business loan.

Although low credit scores might have precluded you from getting a loan in years past, today s lending environment is more open to subpar credit ratings.

While traditional banks may be restrictive when it comes to obtaining credit, there are alternative options, said Michael Kevitch, president and founder of Small Business Funding.

Alternative lending sites such as Small Business Funding tend to base lending decisions on the financial realities of a business rather than the financial history of business owners. Specifically, Kevitch said, alternative lenders take a close look at business performance, industry type, time in business and cash flow before handing out a loan.

Editor s note: Are you considering a small business loan for your business? If you re looking for information to help you choose the one that s right for you, use the questionnaire below to have our sister site BuyerZone provide you with information from a variety of vendors for free:

Myth No. 3: The best way to obtain a loan for your business is through a bank.

Traditional lending institutions have been a mainstay of small business funding for many decades, and still are in some industries. But they are not the only sources of financing.

For business owners looking to borrow a relatively small sum (between $5,000 and $250,000), getting a bank loan is likely to be more trouble than it s worth, Kevitch said. However, he noted that bank loans may still be appropriate for business owners who need to borrow a large amount of cash, over a long period, and still get a low interest rate. Kevitch advised business owners to make sure they fall under those categories before applying through a bank.

Kevitch noted that alternative lending sources often provide faster approvals; sometimes, businesses can obtain access to the funds in as little as seven days, he said.

Myth No. 4: The worst way to obtain a loan for your business is through a bank.

Bank loans may not be the best option for every small business, but they re far from the worst funding option out there. In fact, for established businesses looking to grow at a moderate rate, traditional bank funding is generally a great option, Adam said. It s when a business doesn t fit those criteria that business owners should consider shopping around.

If you are a younger company, pre-revenue or low revenue but plan to grow very quickly due to the industry that you re in (e.g., health care, IT or software consulting) then a traditional bank loan may actually limit your growth, Adam said.

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 anticipate steady growth over the next few years, then a traditional bank may be best, Adam said. 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 nonbank lending partner, as banks may not be able to keep up with your needs.

Myth No. 5: The more money you ask for, the less likely you are to be approved for a small business loan.

You may find this myth floating around online forums and perhaps even hear it from well-meaning friends and family members. It s all right to ask for money, nonexperts will tell you; just don t ask for too much. While this might be reasonable advice in personal circumstances, there s not much truth to it in the business world.

According to Jess Harris, content and social manager of business lender Kabbage, a working paper from Harvard Business School revealed that banks actually prefer lending larger amounts because they make more profit from large loans in the long run. In turn, banks are cutting back on smaller loans.

Evan Singer, general manager at online Small Business Administration loan program SmartBiz Loans, said a business should apply for the amount it needs no more and no less. He 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.

Make sure that you have cash flow to make your loan payments, Singer said. That s the biggest thing that a [lender] is going to check that [the business owner] can actually afford to make their loan payments.

Myth No. 6: The most important thing you need in order to obtain a small business loan is a good business plan.

There are multiple perspectives on whether a traditional business plan still has a place in the loan application process. Some funding experts believe that the method of using a business plan to measure the likely success and fundability of a business is a bit outdated. Singer said that although traditional banks might still require business plans during the loan application process, online lenders typically don t look for it.

And although Adam agrees that most lenders won t require a full-fledged business plan, he does think that having a plan at the ready is always a good idea.

Every business should have some sort of business plan, Adam said. It s just a good practice to anticipate growth, set milestones and keep yourself accountable. If you don t have one, create one. You ll be glad you did in the long run.

Myth No. 7: The most important factor to look at is the interest rate.

Although interest rates are an important aspect to consider when choosing a lender, there are many other factors to keep in mind. Harris suggested asking how much it will cost, what the terms of the loan are, how soon you need to repay the money, and what you can use the loan for.

Ready to choose a loan? Visit Business News Daily s list of the best alternative small business loans.

Additional reporting by Elizabeth Peterson. Some source interviews were conducted for a previous version of this article.

Editor s note: Are you considering a small business loan for your business? If you re looking for information to help you choose the one that s right for you, use the questionnaire below to have our sister site BuyerZone provide you with information from a variety of vendors for free:

Tags : , ,

0 thoughts on “7 Small Business Loan Myths Busted, business startup loan.#Business #startup #loan”

Leave a Reply

Your email address will not be published. Required fields are marked *