While there are many more alternative lending institutions these days than there used to be, the global pandemic, economic uncertainty, political unrest, and other factors also mean that many lenders are stricter on who they will approve loans for and to what degree.
Business owners who haven’t been through the rigmarole of getting a loan before can find the whole process rather daunting, as a result, and, to make matters worse, many myths abound about getting a small business loan.
If you know you’ll need to access additional funds this year or next, it pays to understand some of the most common misconceptions about loans and the truth behind them.
Myth: It’s Impossible to Get a Loan
One of the most pervasive business loan myths is that getting one these days is impossible. While it’s true that many financial institutions have cracked down on funding, and it can be harder to be considered eligible for a loan, that doesn’t mean it’s impossible. At the same time, while many entrepreneurs have stopped even trying to access funds, many more online and other alternative lenders have come onto the market, making cash reserves more accessible for those who own or manage ventures.
Regardless of who you approach for decent small business loans, though, you’re only going to be in with a shot if you apply strategically. That means ensuring you supply all the necessary details that lenders request in their application forms and putting all your paperwork together so it’s easy for approval officers to see the data they need to make a decision.
For example, you’ll likely need to upload copies of financial information such as balance sheets, cash flow data, profit and loss statements, and multiple years (generally five years’ worth) of business tax returns. Add to this depreciation schedules, asset and liability lists, and financial projections to give yourself a better chance of loan success.
In addition, you’ll likely want to have an updated business plan ready to submit to financial institutions if they ask for it, as many do. Such a plan shows lenders that you have thought seriously about the future of your venture and that you have a solid plan for how to move it forward, including how to spend the funds you procure from a bank or other organization to boost business.
Myth: The Only Real Solution is a Bank
Since so many banks have tightened up their lending criteria in recent years, and it’s harder for small businesses to get funding in some ways now, many people assume that if they can’t access funds from a bank, they’re all out of luck. Happily, though, this isn’t necessarily the case. Many other solutions beyond typical banks are worth investigating if you need access to cash reserves.
For example, many boutique online lenders are available these days, as are funding options like using specialist industry lenders or crowdfunding websites or applications. Although approaching a bank may be the first, obvious choice, it shouldn’t be your only option. What’s best for your venture may actually be approaching another type of lender altogether. It all comes down to your firm’s financial situation and longer-term outlook, past trading records, the amount of cash you hope to borrow, your industry’s stability and growth potential, etc.
Also Read: Benefits of Utilizing Localization Software for Your Business
Myth: You Need a Perfect Credit History to Get Approved
One other myth that needs busting is that organizations and/or the people who run them must have a perfect credit history to access a business loan. While, of course, banks and other lenders look immediately at the financial history of the firms they might loan funds to and the people who run them, this is just part of the criteria.
Financial institutions can and do give loans to those without a perfect credit history or even without much of a history at all, provided there’s enough other valid information to substantiate the business or the people behind it. Lenders also consider factors such as how much cash on hand a venture currently has, its annual revenue, profit, growth numbers, and how long it has been trading.
If entrepreneurs are open to offering up their own personal collateral as security for a business loan, this will also improve the chances of getting a yes from lenders. For example, if needed, you might need to put up your house, car, or other assets as loan security.
A couple of other popular small business loan myths that don’t seem to go away are that approval always takes forever (in reality, some lenders, especially boutique ones, can give approval in a day or two) and that only large loans are likely to get signed off. Often, the smaller the loan you want, the easier it is to access financing because the smaller the risk is for the lender.
As you can see, it’s important not to pay attention to all the myths in the world about small business loans. Be open to accessing funding in different ways than expected or at different times, with different lenders, etc. You often need to think outside the box to be a successful entrepreneur, and getting a loan may be no different.