Along with a great idea, you also need the necessary resources to kickstart your business. If you’ve considered getting a small business loan, it’s likely that you will have also heard some myths associated with it. If getting a small business loan is on your mind, here are the top eight myths associated with it and the truth behind them.
Several entrepreneurs believe that if their credit history is bad, they won’t be able to get a small business loan. While a good credit rating can make getting a loan easier, the doors aren’t shut for you if you have a less desirable credit history, or if you’re still building your credit score.
There are short-term loans for those with low credit scores. If you do your research, you might still get a loan for the right amount but with slightly higher interest rates.
Getting a small business loan doesn’t mean your startup is sinking. Think of it as an investment and not as a rescue package.
You can use it to launch a new product, add machinery, expand your team, prepare for a seasonal uptick in demand or invest in marketing.
Getting a home loan doesn’t make your life less secure, as long as you keep paying the monthly amounts. Similarly, a business loan doesn’t put your startup in jeopardy if you always make the monthly payments.
In fact, that cash infusion can strengthen your business during periods of slow growth. You can also use it to expand to new areas and fortify your business.
Unfortunately, this stops many entrepreneurs from getting a loan because they’re unsure about their growth trajectory.
Loan issuers are primarily interested in the stability of your business. In other words, they are looking at the present and not the projected future. If you can handle the repayments with your current revenue, getting a small business loan shouldn’t be a problem.
This used to be true a few years ago. In the past, if you needed a business loan, you would have had to get all your documentation in order, submit them to the bank and wait weeks, if not months, to see if you have been approved.
Thanks to digitalisation, you can now find and compile your documents easily. The issuer also wouldn’t need much time as they would have all the necessary information in front of them.
Banks used to be the hubs for all financial transactions but things have changed. If you have a strong and long history with a bank, you should certainly try that option. But remember that there are other avenues.
You could try crowdfunding or peer-to-peer lending through digital platforms. So, while it’s good to approach a bank, you should also do your research to find out which particular loan would work best for you and your business ambitions.
Just because a bank said no to you, that doesn’t mean a) your business idea is bad or b) that you can’t get a loan from anywhere else.
In the UK, you can check the government directory of small business loans or digital avenues to find appropriate options.
The loan amount you ask for has little bearing on your chances of getting approved. The banks are primarily looking for your ability to repay and might favour larger loans since the repayment would be higher.
This is another reason why you should thoroughly prepare before launching your startup. Thorough preparation will help you to better understand your expected cash flow and your short and medium-term financial requirements.
A possible reason why these myths still survive is that most startup founders and entrepreneurs may not have a background in finance. But it’s important to separate fact from fiction because getting a small business loan can be the difference between an idea on paper and a startup in action.
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