Myth No. 1: Getting a small business loan is the hardest thing you’ll ever have to do.
There’s no denying that getting a loan for your business will not be a walk in the park, but it doesn’t have to be an insurmountable challenge. One of the best ways to avoid getting into difficulties is to prepare for any challenges that the application process may present.
You will significantly increase your chances of a successful application if you do your research, be prepared and have all your documents ready to present to lenders.
Myth No. 2: You must have perfect credit to get a small business loan.
Although low credit scores might have prevented you from getting a loan in years past, today’s lending environment is more open to below average credit ratings. While mainstream lenders may be restrictive when it comes to obtaining funding, there are alternative options, namely The Scottish Microfinance Fund (SMF).
SMF clients are provided with a dedicated loan officer to support them every step of the way while competing their application and offered low cost microfinance options with a competitive interest rate. SMF often lends to clients who have been unable to secure funding elsewhere.
Myth No. 3: The best way to obtain a loan for your business is through a bank.
Traditional lending institutions have been a mainstay of small business funding for decades, and still are in many cases. But they are not the only sources of financing, there are more institutions available to businesses now.
For business owners looking to borrow a relatively small sum, getting a bank loan can be a more difficult option. However, bank loans may still be appropriate for businesses that need to borrow a large amount of cash, over a long period and still get a low interest rate.
Myth No. 4: The more money you ask for, the less likely you are to be approved for a small business loan.
“It’s all right to ask for money, just don’t ask for too much”. While this might be reasonable advice in personal circumstances, there’s not much truth to it in the business world.
In many cases banks prefer lending larger amounts because they make more profit from large loans in the long run. In turn, some banks are cutting back on smaller loans.
You should borrow how much you need; no more, no less. Remember to consider how much you actually need to start or grow your business and how much money you can realistically afford to pay back each month.
Myth No. 5: The most important thing you need to obtain a small business loan is a good business plan.
Opinions vary on whether traditional business plans still have a place in the loan application process. Some funding experts believe that the method of using a business plan to measure the likely success and fundability of a business is a bit outdated. Traditional banks might still require business plans during the loan application process but online lenders typically do not ask for them, relying instead on an electronic risk assessment.
However, even if you don’t require one for the loan application process, it is good practice to have a business plan and projections to anticipate growth, set milestones and keep yourself accountable.