Five Common Myths About Small Business Loans
There's a lot of questions you might have if you're starting a small business, especially questions related to financing and how you can get it. Unfortunately, it's possible to get the wrong information about financing and business loans because there have been a lot of misconceptions floating around on the internet, and even possibly in your own social circles. There are a lot of myths about small business loans out there, but here are five common ones.
Myth 1: All Debt Is Bad
This probably is said because a lot of consumer debt can be bad. Things like auto loans taken out on depreciating vehicles, or credit cards spent on expensive vacations can be bad because you don't get any financial return out of those. With business debt on the other hand, you're buying assets that will be used to make money, and therefore looking for a return on investment. If you're successful, you can pay off your loan and even possibly become cash flow independent.
Myth 2: You Must Have Stellar Credit To Get A Business Loan
It is true that most loans will have a check on your personal credit and will have some credit requirements, but you definitely don't need great credit to get a business loan. You may not be able to get a prominent SBA loan with all the perks that stellar credit borrowers might enjoy, but that doesn't mean you can't get any loans. Small business lending online offers different kinds of loans even for those with poor credit. You usually will pay higher interest rates for business loans when you have lower credit, but even those are usually still lower than credit card interest rates. However, according to the experts at Lantern Credit, “You may need higher personal and/or business credit to qualify when compared to other online business loans. While having a lower credit score doesn’t necessarily disqualify you for an SBA loan, the minimum credit score generally falls around 620-640, but this will vary by lender.”
Myth 3: All Business Loans Are Secured Loans
There are a lot of business loans that are secured loans, but there are unsecured business loans too. Now they aren't always a better option because they will usually have higher interest rates than secured loans, require higher credit to be approved for, and in some cases may have a catch such as a personal guarantee hidden in small print. But if you can qualify for them and don't want to put your assets at risk, you certainly can apply for unsecured business loans or lines of credit.
Myth 4: You Must Be In Business At Least 5 Years To Get A Loan
In the past this may have been true, but today it's not necessarily so. Lenders, especially online ones have new methods for screening borrowers, and they may be able to make approval decisions based on as little as one or two years of business history. There are even some micro loans that are offered to businesses who are literally just starting up.
Myth 5: All Business Loans Take Weeks Or Months To Fund
With some bank loans you have to wait a while to get funded because their loans are setup in a manner that requires printed evaluation of many printed documents. But many online lenders have newer methods for evaluating loan applications that don't involve as many documents. As such they could fund loans in as little as two or three days.
In conclusion, don't let those common myths discourage you from looking at small business loans or other financing options because there's usually plenty of options out there. You may face more obstacles to getting good business loans if your business is newer, but do your research and see how much in loans certain lenders could qualify you for.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes