The 6 Most Toxic Small Business Loan Myths
How much does your credit score matter when securing a loan? How much money is too much to ask for? Let's dispel some rumours and make it easier for you to gain the support you need.
Obtaining a small business loan might seem scary at first, but it's easier than you might think. If you've never done it before, or if you've never spoken to a specialist regarding the matter, you might have heard a few things that are not only false but downright toxic when it comes to growing your business.
Before we get into the myths, you have to understand a few critical things about small business loans: they can vary by type and lender, which means that not all loans are the same. Each type of loan can have advantages and drawbacks. According to the nature of your business you're running, your track record, and how much money you tend to make every month, different types of loans might suit you better than others.
So let's get into the myths and why they're simply myths:
Myth #1: Obtaining a small business loan is a long and frustrating process.
False! As long as the amount of money you want to obtain falls below the million-pound mark, or even better, below the 500k mark, you can typically get a loan in just a few days. As long as you're transparent about your business and about what you intend to do with the money, you shouldn't have any problems applying for credit either at the bank or at private lenders.
Even better, if the amount you need is very small and if you want to get rid of the debt in less than a month, you can try out payday loans. You can apply online on a direct lender's website, and you don't even need to fill out too many forms.
As long as the amount of money you want to obtain falls below the million-pound mark, or even better, below the 500k mark, you can typically get a loan in just a few days.
Myth #2: Your credit score must be impeccable.
While traditional banks care a lot about your credit score, alternative or private lenders don't take it into consideration that much. Instead of looking at your financial history, this type of lender analyses the financial reality for a certain business based on market trends, your area's economic status, and other similar factors.
In any case, don't limit yourself to just one offer. Instead, ask several lenders about their offers and try to negotiate what best suits your situation. You might stumble upon a far better offer than you were expecting.
Note that while your credit score doesn’t matter as much, you still need credit history. A credit history is different from your bank profile. It gives lenders proof that you can handle a loan. Having credit history also indirectly impacts your credit score.
A good strategy for increasing your credit score is to apply for a payday loan. While these loans offer only small amounts of money, it’s usually enough to cover urgent expenses such as taxes or health emergencies. And because we’re talking about small sums, you can pay them entirely within one month. And the best part: you can get them online from a direct lender. Bonus: they also increase your credit score by showing banks that are able to handle your finances.
Myth #3: If you ask for too much money, you'll be instantly rejected.
How much money you request doesn't necessarily impact your approval chances. In fact, lenders often prefer giving out big loans because they win back more money over time. Banks are especially more hesitant to give out small loans rather than big ones. It's generally a good idea to apply for just how much money you need while considering how much you can pay back monthly.
Afterwards, the lender is going to check if you have enough cash flow to make your payments on time. As long as you take these factors into consideration, you can grow your business so much that your profits might easily surpass the lender's interest rate.
Myth #4: Getting a loan for a start-up is nearly impossible.
Many aspiring entrepreneurs simply assume that you need to have been in business for at least a few years to build up a credit score before applying for a loan—nothing further from the truth. In reality, a lot of lenders offer start-up loans that are aimed specifically at businesses with little or no credit history.
Sure, your personal credit score will be taken into account. However, as long as you're in good standing and present yourself with a good business plan, you'll likely get approved. So do your homework and don't be afraid to ask for an expert’s help. You might be pleasantly surprised by the outcome.
Myth #5: The bank is the worst place to get a small business loan.
While alternative financing is usually great for obtaining small business loans, banks can often offer some advantages. For example, if you're in a fast-growing field such as IT, healthcare, or software consultancy, banks might not be that great. However, if you anticipate a steady growth over a couple of years, then traditional banks have great offerings.
They have several plans from which you can choose. Fixed interest rates and flexible interest rates might also play a big role in choosing what's best for you. Commissions, late fees, and early repayments also need to be considered. Yes, some banks often cut a small part of your interest rate if you pay a part of your debt in advance. That might just be what you were looking for your business.
Myth #6: Online lenders are frauds with disgusting interest rates.
False. This one is simply false. If we were to go 20 years back in time, sure, such a statement might have made sense. However, the world has changed so much it's almost incredible. Think about all the things you do online every single day. Now think about how you used to do them in the past. It's not any different from loans nowadays.
More and more online lenders have appeared on the market in the last couple of years. Many of them offer single-digit interest rates. It's up to you to find the ones who offer plans that benefit you in the long run.
We hope the information you have found here will help you make the right decision. To reiterate, what matters most is finding the right solution for you. To achieve this, never be afraid to consult with experts. And ask the lenders as many questions as possible before making a commitment.
So do your research and don't be afraid to try something that you haven't until now. The small loan you take out today might benefit you immensely in a couple of years. Or maybe even in a couple of months.