There is a flip side to everything. Although we are fortunate to be living in an era where information is available in abundance, we cannot escape the unfortunate side-effects of misinformation.
Take business loans, for instance. Essential to expand a business, they are also surrounded by myths that easily find their way to small business owners, confusing them in the choices they make.
If you are a business owner in the need of financing, you need to be wary of these top 10 SME loan myths.
#1 Small loans are never approved
Your business requirement should justify the loan amount that you wish to apply for. Even if your requested loan amount is small, business funding is easily available as long as you meet the eligibility criteria.
#2 Very large amounts don’t get approved
Large scale financing requests do get approved unless the scale of your business does not validate the amount requested. If the requested amount is right to grow your business and your business has the capacity to pay back installments each month, larger amounts are not likely to hinder the approval of your SME loan.
#3 Personal loans are better than business loans
While personal loans may get processed faster, there is a greater risk involved if you plan to use the same to grow your business. Using a personal loan denies a business the opportunity to build its own credit. Moreover, the lending limits are lower and the interest rates involved are much higher.
Availing a business loan, on the other hand, helps keep business and personal finances separate, thereby promoting business growth.
#4 Business loans are hard to get
If you meet the eligibility criteria for a business loan, there is no stopping you. To have your business loan quickly approved and disbursed, you must have a solid business plan, a good credit score and all mandatory documents in place.
#5 Business loans are only issued against property
It is possible to acquire a business loan without collateral, as per schemes under the Ministry of Finance. Once a small business meets the necessary terms and conditions, the unsecured business loan is approved without any difficulty.
#6 Personal savings are better than business loans
Liquidating your entire savings just to avoid taking on any kind of debt might not be worth the risk. Taking on a business loan is not always an expensive proposition. It not only saves your personal funds for unforeseen circumstances but also enables you to earn returns on the same. Moreover, a business loan gets you tax benefits on your loan repayment.
#7 Big banks are best for business loans
The lending landscape has changed and developed massively in the recent times. While traditionally big banks appear more reliable, viable business loans can now also be obtained through smaller banks and lenders, sometimes even at a lower rate of interests.
#8 Personal credit scores don’t affect business loan applications
The credit score conveys an owner’s financial standing. A good personal credit score assures the lender about your loan repayment pattern in the past and makes acquiring a business loan much easier.
#9 Business loans are possible only when credit scores are perfect
While borrowers with a poor credit score are seen as being at a higher risk of defaulting on a loan, a less-than-perfect credit score won’t completely ruin your chances of getting the financing you need. Business funding, in such situations, come at a higher rate of interest but can be an excellent option to grow your business.
#10 Interest rates should be the deciding factor for business loans
While the interest rate is a crucial piece of information, sensible borrowers must look beyond it before picking an appropriate loan. Before you make up your mind, also consider the terms of the loan, the tenure period and what you can use the loan for.
Now that the above myths have been debunked before you decide whether to borrow or not to borrow, fuel your mind with the correct facts and then move forward with your decision.