A business may occasionally require additional cash for short or long-term purposes. As a business owner, you can invest your own money or seek external investment. A small business loan, however, is a more common option.
However, some business owners, especially those who have never taken a business loan, can have several doubts about business loans. Indeed, the process involved in arranging a business loan, its benefits, and many other issues are commonly misunderstood.
Here are some common myths about business loans and the facts that all business owners should know.
Loans Only Benefit Businesses That Aren’t Doing Well
Many assume that any company in need of a loan is facing a hard financial time. Distressed companies have a particular motivation to get loans, but plenty of strong businesses also require occasional loans.
The type of business determines the need for additional financing. Your business can acquire a loan to finance growth and expansion, for instance, through hiring more staff or installing additional equipment. Such improvements can boost your business’ success and make it more competitive.
You Need to Have a Perfect Credit Rating to Get a Loan
To be clear, you should always maintain good credit scores on your personal and business accounts. Having a good credit rating makes borrowing easier and gives you more options for deals you can choose from. However, a low credit score isn’t an indication that you can’t get a loan.
Bad credit does happen, and lenders recognize that. The lenders also recognize that a lower credit score does not necessarily mean you are a lending risk. Therefore, you may still be able to find a lender willing to work with you. You may have to make a trade-off, such as accepting a higher interest rate.
Small Businesses Cannot Apply for Larger Loans
In no way should the size of your business prevent you from approaching a lender for a larger loan. Many lenders prefer high-amount loan applications, including mainstream banks.
However, repayment capability is key for a small business looking to borrow a larger sum of money. Thus, you should be able to provide proof to your lender that your business can afford to repay the loan. If your company lacks adequate cash flow, you may still get a loan if you convince the lender that your business plan will allow you to repay the loan.
All Business Loans Are the Same
Your business may want to borrow money for many reasons, and you have many options for financing your endeavor. Numerous loan options can be advantageous, but they also necessitate research before you apply.
Choosing the right business loan is the first step to obtaining business financing. Some of the types of business loans can include:
- Working capital loans for every day variable expenses the business has
- A term loan to finance the cost of fixed expenses or a business acquisition
- Equipment financing
- Inventory financing
- Accounts receivable financing
- Purchase order financing
You can determine what business loan is best for you by considering factors such as your loan purpose and desired loan terms.
Loan Applications Are Time Consuming
The myth was true years ago — getting business finance approval could take months due to paper-based submissions and employee evaluations. Thanks to paperless digital solutions and software, the process is much faster today. You can complete your application within minutes and get approval in days.
But don’t ignore the importance of doing some preparation beforehand. The lender can turn your business loan request around faster if you provide all of the necessary items they need to underwrite your loan request quickly. The count down to closing starts when the lender has 100% of what they need to issue an approval on your loan.
The misconceptions about business loans can prevent you from being able to take advantage of a favorable financing opportunity. Hopefully, having busted a few myths on business loans has given you a good idea about why loans can be an excellent financing source.
For more information on business funding or to complete a funding application, feel free to contact us at Huntington Coast Capital, Inc., today. Call 844-239-2632 and learn how a business loan can help grow your business!