SMEs today have it better than their predecessors. There is easy access to information and opportunities, not to mention easier funding avenues. However, a flip side to this overload of information is misinformation.
In the course of our years in small business financing, we have come across a multitude of misconceptions and myths. Here are the 5 most common myths about small business loans.
Myth#1 The best way to get a business loan is through a bank
About a decade back the only option for an SME was to go to a bank. And this changed dramatically after the recession. Many banks withdrew from small business financing, leaving entrepreneurs in a lurch. But things are changing now.
There are a host of online alternate financers for SMEs to approach, where each one has its own set of processes that allow entrepreneurs to choose one that suits their needs perfectly. In fact, studies shows that online lenders come with a host of benefits.
Myth#2 You need perfect credit to get an SME loan
No one starts off with impeccable credit scores. Those need to be built over time. Some people will have you believe that your credit score, or lack of it, will impact your loan eligibility. This is a myth, going back to the days of traditional bank lending.
With many alternate funding options available today, what matters is a business’ revenue history, its cash flow statements, the business plan and other financial documents. A credit score alone can never hope to pain a complete picture as clearly as all these factors do.
A word of advice: do keep working on your credit score all the time to create the right financial history. Lenders are devising new ways to collect data on small businesses.
Myth#3 Getting an SME loan is time-consuming
There was a time when getting a loan meant a long waiting period of weeks, if not months. But that was in the not-so-golden olden days. The business of lending for SMEs has altered for the better.
New online loans make the process much more streamlined and faster. From application to approval (with all the right documents, of course) business owners can be set with funds within two to three working days. Everything is conducted digitally, and the minute you ‘submit’ your application, the process begins.
Myth#4 SME loans are hardly ever approved for small businesses
An SME needs funding to get its business really going, and to get funding, it needs to be an established business to begin with. Or does it?
Yes, traditionally lending institutions might have been more likely to fund businesses that have been operating for a few years and have an established credibility.
But the landscape is changing now, and many lenders are offering SME business loans with bare minimum credit history. You might get a lesser amount or higher interest rates, but securing a loan will not be impossible.
Myth#5 Online platforms are unsafe
It’s understandable to be a little sceptical about online loans, since some deceitful operators have tricked entrepreneurs. Having said that, it is heartening to note that the market is filled with alternate lenders that offer competitive rates and flexible terms to small businesses.
Now that you know that these myths are just that, myths, you are better equipped to apply for a loan. Do check the credentials of the online lender and compare rates and terms with those prevalent in the market before you commit to the dotted line.