Entrepreneurs can be meticulous thinkers, anticipating every potential stumbling block that their business may face.
“Having a cautious attitude in doing business is both a gift and a curse. ‘Ultra-cautiousness’ may benefit a business owner at times, sometimes, it when it can be a burden. With small-business loans, it’s commonplace to be overly cautious—but it shouldn’t be so,” counsels Max Funding small business loans advisor Shane Perry.
When it comes to small business financing, myths about small business loans can be a roadblock. So please take a closer look at the following business loan myths and why they don’t hold up.
Myth #1: The Only Way To Get A Small Business Loan Is Through A Bank
A bank is simply one option for small business loans; plenty more are available if traditional lenders cannot meet your needs. Other financing options include merchant cash advances, unsecured small business loans, crowdsourcing, and communal loans, all of which are easily accessible and gaining popularity.
Myth #2: You Won’t Be Able To Get A Loan If You Don’t Have A Business Plan
Yes, this is true in the case of a small business loan from a bank. Firm plans show how successful a business can be with all of the procedures in place. If you don’t have a business plan, it doesn’t suggest you can’t acquire financing.
Alternatively, to grant a loan, alternative lenders do not request business plans or complex financial data. Instead, they look at how long your business has been in operation, your monthly earnings, your creditworthiness, and how much money is available for you to borrow.
Myth #3: Your Eligibility Is Determined By The Loan Amount You Apply For
Many business owners assume that a bank or lending company would decline their loan application if the amount of loan requested is high. Nevertheless, the amount of money that is being borrowed is not a determining factor.
Under the best of circumstances, lenders are more concerned with your capacity to pay the payments regularly.
Myth #4: You Have To Go To A Bank To Secure A Business Loan
False. While banks are frequently the first port of call for business owners needing loans, several non-bank lenders can provide small business loans. In addition, some private lenders leverage technology to allow streamlined online loan applications. Consequently, they may be more flexible in their financing decisions because they are not subject to the same rules as deposit-taking institutions (ADIs).
Myth #5: Getting A Business Loan Requires A Lot Of Paperwork
It’s not true. The condition is true for certain types of loans—but not with small business loans. Bank term loan applications, for example, require you to fill out a lot of paperwork. Also, a bank may ask you to submit a business plan in certain instances.
However, there is less paperwork involved if you apply for an unsecured small business loan online since the processing is mainly automated.
Myth #6: You Need Collateral To Secure A Business Loan
Collateral is required for some business loans. These are known as “secured” loans for small businesses. In addition, it’s common for banks to ask for security, such as a residential or commercial property.
A business line of credit, for example, is offered as both a secured and an unsecured option. Unsecured loans have higher interest rates, typically 1.5 times more than those secured, which is the most significant distinction for the borrowers. An unsecured company loan carries additional risk for the lender. If the loan is backed by collateral, the lender can sell the asset to pay back the debt.
Expert Business Advice To Ponder
Some of the world’s fastest-growing businesses use small business loans to enhance their services, expand into new areas, negotiate better rates with their suppliers, and other purposes. They draw benefits from these funding sources despite myths and fallacies revolving around small business loans. Present lending guidelines have undoubtedly evolved throughout time, mainly since alternative and non-bank financial institutions have emerged in various industries.
So, what is it that makes many Australian small business owners so opposed to borrowing money? The simple truth is that many of them do not understand how small business loans work.
The question is, will you commit the same mistake, or would you muster the courage and make a wise move to consider small business loans?