A lot of business owners don’t know much about business financing or have the wrong information about what’s involved. There are a lot of different types of business finance options out there and it can get overwhelming looking for the right option or even taking that next step towards actually getting the finance. Knowing what is true and false will give you an idea of what to expect from the process of getting a loan.
Here are some common business finance myths out there:
- You have put assets up as security for a loan
There are unsecured business loans and line of credit options that don’t require any security. A lot of business owners can be hesitant about putting up collateral for finance as they don’t want to run the risk of losing that asset. The eligibility criteria is usually a bit more strict than with a secured loan and loan amounts can be capped at a certain amount. With larger loan amounts or an unhealthy credit file, a secured loan might be a better option. Always check the lender’s eligibility criteria to see what you will qualify for first.
Related Article: Secured or Unsecured Business Loan?
- You can only borrow a large loan amount
Many business owners think that you can only borrow large sums of money when getting a business loan. This is not true; the amount you can borrow will vary depending on the lender and the facility taken out. Loan amounts start from as little as $2000, so don’t be discouraged about applying for finance if you just need a small amount. You should only take out a loan for the amount you need, instead of taking out a large amount of capital because you are forced to.
- Business loans take a long time to process and receive the funds
Getting business finance can vary in time depending on the lender, but most lenders are reasonably quick with processing applications. Gone are the days when you had to fill in countless paperwork and wait weeks or even months before getting the funds into your account. These days, a lot of finance lenders process their loans online, which means the whole process has become more simplified. You may still be required to provide certain documents but the majority of uncomplicated applications can be funded within days. This is great for business owners that need the cash fast which will help their business to keep growing with minimal hold-ups.
- Your credit file has to be perfect
A lot of business owners think they need to have a perfect credit file and credit score to get approved for a business loan. But it depends on the type of finance you are applying for and lenders eligibility criteria. Having a good credit file will definitely improve your chances of approval however there are options for people with less desirable credit files. Usually secured business loans will be more lenient as there is a guarantee for the lender with the secured assets. Unsecured business loans will tend to be more stringent with a business having a good credit file, as it is a higher risk for them. However, every lender has different eligibility criteria and the required credit file health will vary. Knowing what is on your credit file will help you to determine where you stand with lenders and what type of finance you will be eligible for.
- All business loans are the same
Business finance options are all different as well as all lenders being different. Different lenders offer different finance options and will usually assess each business individually. Lenders will offer different loans for different reasons and will have varying eligibility criteria. Some things lenders will take into account is your business’s needs, how long the business has been trading for, financial stability, credit history and risk factor.
Related Article: Main Types of Business Finance Options
- There are no financing options for start-up businesses
Although there are not as many options for start-up businesses as there is for existing businesses, there are still options available. Start-up businesses are usually considered a higher risk as they don’t have the businesses financial history or experience. Some finance options to consider for start-up businesses are personal loans, business credit cards and secured business loans. Your credit file and eligibility criteria will play a big part in your approval.
Remember these myths and know that not all finance options and lenders are the same. There are lots of different finance options out there so always do your research and find the best one that suits you and your business’s needs.
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