You want to start a small business, but you don’t want to use loans to do it — why? Most likely, you have fallen victim to any number of myths and misconceptions about small business loans, which continue to frustrate entrepreneurs and business leaders looking for funding solutions. If you are loath to take advantage of the power of small business loans, you might want to consider whether you believe any of the following damaging falsehoods about small business lending:
Only Banks Provide Business Loans
Banks are well-established in the cultural psyche as the definitive source of all financial products, to include all manner of loans — but in truth, you do not need to utilize a bank to obtain a small business loan. A great variety of financial institutions offer a plethora of business financing options, from typical term loans to lines of credit, invoice factoring, purchase order financing and more. You might want to search for non-traditional lenders experienced in your industry to provide financial services that can boost your business success.
Loan Applications Are Confusing and Time-consuming
Business loans tend to involve the transfer of hundreds of thousands — perhaps even millions — of dollars, and no financial instruction is going to part with that kind of cash without some degree of due diligence. Still, lengthy and complicated loan applications tend to be a hallmark of banks, which are more highly regulated to ensure that the loans they supply are not excessively risky to the institution or the recipient. Non-bank lenders can make the process of applying for a loan much more straightforward, which means you could secure your loan swiftly and begin building your business bigger in no time.
Small Businesses Cannot Access Large Loans
Just because your business is small doesn’t mean that your financial needs are not great. During startup and growth periods, your company could demand as much capital as a much larger organization, which means you might need access to a much larger loan. Fortunately, there is no established rule stating that a small business cannot take out as much as a major corporation. You are limited in the loan amount only by what your business is capable of repaying. If you can demonstrate to your lender that your business plan will generate heroic amounts of income, you can qualify for a sizeable business loan.
Only Failing Businesses Need Loans
There are many different sources of business funding: venture capitalists, angel investors, crowdfunding campaigns, bootstrapping. Some entrepreneurs believe that these other sources of funds are superior to loans because they allow businesses to begin and grow without taking on debt. These business leaders might assume that only in desperation would a business turn to small business loans — but that is simply not the case. Many entrepreneurs opt to take on debt rather than surrender equity in their companies to third party investors, and many business leaders find that taking on debt is a useful motivating force to ensure business growth and success. Loans are merely financial tools to be wielded whenever you need them, not merely as a last resort.
Businesses Need Perfect Credit Scores to Obtain Loans
Generally speaking, better credit scores do make acquiring business loans much easier. With a high credit rating, you can gain access to higher loan amounts, lower interest rates and overall more favorable terms. Still, your business credit does not need to be perfect for you to acquire a business loan that will make a difference. Non-bank lenders tend to be more lenient about credit scores, so if you know that your credit rating is not ideal, you might skip banks and look elsewhere for the loan you need. Alternatively, you can work to improve your business’s credit score in various ways.
Almost half of all small businesses take out loans to initiate or sustain their growth. If small business loans were so disastrous, much smaller numbers of business leaders would rely on them to give their companies strength. You aren’t the only the only entrepreneur to wonder “How do small business loans work?” The sooner you come to understand the remarkable benefits of small business loans, the sooner you can utilize loans effectively to build the business of your dreams.