Small Business Loan Myths: What You Should Know

When looking for funding for your business, there are a lot of misconceptions as to how hard it is or how impossible it is to be granted one based on your credit score. While there are cases where these things come true, they shouldn’t limit you to seeking other ways where you gain capital for your small business.

If you want to know more about the truth behind small business loans, read on for more information.

5 Small Business Loan Myths Busted!

  1. You need a perfect credit score to get approved for a loan.

This first myth is false and the only truth here is that in the past, you did need a good credit score (nope, it doesn’t have to be perfect either) for higher chances of getting approved. However, nowadays, it’s not only your credit score that is taken into consideration.

Instead of credit score, most alternative lenders look at your whole business model (your revenue streams, and costs) and your financials. Their concern is whether you get a positive cash flow or not. They also look at your whole business and its ability to earn money rather than solely focus on your credit history.

  1. It’s difficult to get a loan for small business.

Nothing in business is ever easy, so you might as well debunk this myth. Obviously, getting funds and investors for your small business is difficult because you have to present your business model and get your finances straight. If you messed up the books, then you’re definitely going to have a hard time.

However, all hope shouldn’t be lost. The key to overcoming this task is to prepare early and well. In the beginning, always remember to keep track of your books and to have proper check and balance. Also, it is important that part of your assets is liquid so that you will be able to show the lender that you have the capacity to pay your loan.

  1. The higher the loan, the lower the chances of it getting approved.

This is a myth because financial and lending institutions are able to loan large amounts of money. They are precisely made for that anyway. If you think that your small business requires more funding, then feel free to be transparent about the loan you want.

What makes banks and lending firms iffy about asking for a bigger loan is your ability to pay it back. Of course, this wouldn’t be a problem if you are able to show that you can settle in the time that they gave. To add to that, one of the reasons why small businesses are not granted bigger loans is because financial institutions look at the need for that amount of money. If it seems to them that what you’re asking for is too much based on your financials, then they will not grant you the whole amount.

These three myths are the top concerns of small business when getting loans. Although there is more, they are easily busted because now you know the basic facts in asking for loans to fund your venture.