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24 Oct 4 Common Small Business Loan Myths
Growing your business requires time and money. Obtaining a loan for your business is a great way to boost investment and maintain growth during cash flow lulls.
However, there are several small business loan myths that can make small business owners reluctant to apply for funding. Separating fact from fiction can help you decide if a small business loan is right for you.
Myth 1: If You Get Declined by a Bank, You Won’t Get Approved Anywhere Else
This is one of the most common small business loan myths. Traditional banks tend to have rigorous loan application processes, which can be intimidating for small business owners. According to the Federal Reserve’s 2017 Small Business Credit Survey, 13% of business owners who need financing have never applied for a loan because they fear rejection.
But failing to qualify for a business loan through a traditional bank doesn’t mean you’re out of the financing game. Online lenders and marketplaces typically offer different application and approval guidelines, which means they can often offer capital to business owners who don’t have the revenue or credit score to qualify for a bank loan.
Myth 2: It Only Makes Sense to Apply for a Business Loan if You Need a Large Amount of Capital
Contrary to this small business loan myth, not every business needs millions of dollars to fuel growth. The Federal Reserve report mentioned above found that 55% of businesses apply for $100,000 or less in funding.
There are small business loan options to suit almost any need, whether small or large. Business owners should consider how much money they really need to grow their business and how much they can afford to pay back each month. Borrowing just what you need makes it easier to manage repayment and your monthly cash flow.
Myth 3: You Need Perfect Credit and a Lengthy Business History to Get Approved
While this may be true if you’re pursuing a loan through your bank, it’s not necessarily the case with online lenders and marketplaces. Many online lenders offer loans specifically for startups and/or business owners with poor credit and marketplaces give you the option to browse several types of loans to find the right one.
However, it’s important to work on improving your personal and business credit scores, as well as increasing your business revenue. The stronger your credit and business profile, the better the loan terms you’re likely to qualify for.
Myth 4: There Are Restrictions on How You Can Use a Small Business Loan
Another popular small business loan myth is that there are strict restrictions on what you can and can’t do with your business loan. There’s a small business loan to fit almost any project and most lenders won’t impose restrictions on how you chose to allocate your loan. For instance, you could use a loan to:
• Buy new equipment, including software and appliances
• Develop a new product line or increase your inventory
• Renovate or expand your business space
• Hire employees or cover payroll
• Pay business’ annual tax bill
The possibilities are entirely up to you. Ultimately, the loan you choose should be designed to fit both your business’s needs and budget. Don’t let these small business loan myths stop you from seeking the working capital you need to succeed.
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