Business Loan Myths Busted

Obtaining a loan for your small business is a great way to boost investment and even grow your business when the time is ripe. You might have heard some grumblings about small business loans: they’re hard to obtain; your credit has to be flawless; don’t ask for too much money or you’ll be denied. Fortunately, these prominent myths surrounding small business lending aren’t necessarily true.

It’s important to manage debt properly, but doing so can help grow your business at a faster rate than scrimping and saving. To help you obtain a small business loan for your company, Business News Daily spoke with finance experts to debunk six common myths about getting a business loan.
Myth No. 1: Getting a small business loan is the hardest thing you’ll ever have to do.
Like other forms of financing, obtaining a small business loan is all about preparation. Ensuring your books are transparent and you maintain the reserve liquidity to encourage the lender that you’ll be able to service your debt on time and consistently will lead to success. And experts agree the best way to avoid unnecessary snags is to prepare ahead of time for the application process.
Myth No. 2: You must have perfect credit to get a small business loan.
Low credit scores are a concern for some lenders, but banks aren’t the only lenders out there. Alternative and private lenders are often able to offer more flexible terms, including which level of creditworthiness they can approve.

“While traditional banks may be restrictive when it comes to obtaining credit, there are alternative options,” said Michael Kevitch, president and founder of Small Business Funding.
Myth No. 3: The best way to obtain a loan for your business is through a bank.
Entrepreneurs have more than one option for obtaining financing; banks are not the only game in town. There are alternative and private lenders, as well as creative types of lending like invoice factoring, which can help business owners shore up their capital without going through the lengthy and restrictive application process required by conventional lenders.

For business owners looking to borrow a relatively small sum (between $5,000 and $250,000), getting a bank loan is likely to be more trouble than it’s worth, Kevitch said. Banks are more suitable for businesses that are interested in borrowing a large amount of cash and repaying the loan over a long period of time at a relatively low interest rate. Kevitch advised business owners to make sure they fall under those categories before applying through a bank.