Procuring the right loan for your business can determine the success for that venture. There are plenty of avenues in which to obtain financing, but the most common is through a loan of some sort.
That said, many people have misconceptions about those loans that could lead to confusion. Being armed with as much information as possible is necessary when dealing with a business loan broker and is imperative for getting the optimal loan. Here are five of the most common misconceptions when it comes to business loans.
1. Credit Has to Be Perfect
We hear all the time that business loans require a spotless credit history. While it is necessary to have good credit, a record that is squeaky-clean is not necessarily needed.
The credit score requirement can vary greatly based on the type of business loan that you are looking to obtain. If anything, look into the specific type of loan that you think may help to find out what the credit requirements are. You may be surprised to find that the requirements are not nearly what you thought.
2. Large Amounts Only
Most small business owners assume incorrectly that financing is only available or appropriate for applicants who need a lot of money. Traditional lenders (banks) prefer larger loans that are worth their investment and time, but there are also plenty of microloan options available.
One of the biggest mistakes that small business owners make is overexerting themselves. That not only means doing too much within the business, but also setting themselves up with a loan that does not make sense for their needs. Aim for what your business needs, not what you think it will have to qualify for.
3. It Takes a Long Time
Planning ahead is great. Some people even plan to submit their application for a business loan months beforehand. The common misconception with business loans is that they take months to procure financing.
These days, even the smallest of business owners are able to complete an online application in mere minutes. Even better, they can see their cash within just a few days depending on the lender of their choosing. There might be extra time needed to produce things such as bank statements or balance sheets, but even that will take a week, maybe a little more.
4. Offering Collateral
When the word “collateral” comes into play, it can be a scary proposition for potential small business owners. Taking a loan out can be scary enough but offering up a form of capital to get the loan seems to kind of defeat the purpose.
Some loans definitely do require collateral for financing, but that is not a given. There are plenty of businesses out there that have no collateral requirements. Unsecured business lines of credits, unsecured business loans, and even business credit cards can all be obtained without putting collateral down ahead of time.
5. All Financing Options Are the Same
While business loans aren’t all these unique butterflies, they definitely are not of the cookie-cutter variety, either. For the most part, loans will vary on a case-to-case basis. It comes down to the needs of the business, their credit history, finances, and plans for those funds.
Lenders are certainly looking at certain risk factors before making their decision. How those risk factors are met depends on the borrower. The very best thing any applicant can do is enter the process with as much information pertaining to their business as they possibly can. Be prepared to answer lots of questions, too.
No one ever said that starting a business was easy. There are a million different things that require attention at any given time and it is definitely not something that everyone is cut out to make a go at.
That said, having a clearer picture of the loan process can be a major factor in starting a business. Getting the proper financing can mean a world of difference, especially for smaller businesses where room for error is almost non-existent.
Knowing precisely what to look for when finding a business loan is crucial. As long as you take the time to choose the right business loan, you’re one step closer to success.