All financial planning and assistance methods, especially small business loans, are surrounded by myths and misleading information online.
Misinformation might even keep you, a small business owner, from seeking and receiving the financial help you need for your business.
Out of the countless myths about small business loans out there, we singled out 5 of the biggest and most well-known and debunked them one by one.
The biggest myths about small business loans
Myth #1: You need a perfect credit score to qualify.
This isn’t true. Lenders do consider your credit score, both business and personal, to determine whether or not you qualify for a loan, and don’t usually lend to people or businesses with low credit scores. It doesn’t need to be perfect, but spend time improving the score to increase your chances in the future.
Today, lenders consider a larger picture of your business and personal financial patterns, not just the credit score. This includes cash flow statements, your company’s revenue history, and other financial documents that can show the financial shape of your business more than a single score.
If you’ve faced rejection from several lenders and just can’t get a loan with your credit score, you can seek out an alternative lender for a smaller loan.
You can also work to improve your credit score up to 100 points by:
- Making all payments on time every month for at least 6 months
- Using all lines of credit responsibly and judiciously
Myth #2: Small business loans are a last resort.
Small business loans aren’t just for struggling businesses. Business owners seek out loans for expansions, add-ons, or simply difficult seasons when sales are low. Don’t feel embarrassed to get your business the extra help it needs. It doesn’t mean you’re struggling to keep the business alive. It means you’re invested in ensuring it’s health!
The best time to prepare for a small business loan is not when it’s the last resort. Think of it as insurance for your business. Do some research on small business loans and lenders and find out what the options are for your business. Then, if you ever need to take the option, you’ll know exactly where to start.
Myth #3: You should always get your loan from a bank.
Yes, it’s true that most small business loans are provided by banks. However, the statement “You should always get a loan from a bank” is a myth. There are literally thousands of alternative lenders in the United States that exist solely to cover the gaps that bank small business loans leave.
The Small Business Administration has a list of the top 100 most active SBA 7(a) lenders in the United States. Here are the top 10:
As you can see, the top lenders are banks because of the sheer amounts they lend out. It’s worth researching alternative lenders to see who the best match is for your business’ needs at the time.
Myth #4: It’s a long time before you get your money.
It doesn’t take long to get your money once the process begins! You can expect to get a response to your original small business loan application within 36 hours, and it usually doesn’t take the full amount of time.
Some lenders offer expedited loan turnaround time specifically for “right-now” small business loan needs. If you need money right away, there is a lender available to make sure you get it. It’s important to do your research to ensure you’re working with accredited lenders that will treat you right.
Myth #5: Lenders don’t give loans to new businesses.
It’s a Catch 22 situation: Your business should be established and doing well to ensure you qualify for a small business loan, but you can’t get your business off the ground without a loan in the first place. What are you supposed to do?
Even if you don’t want to actually go the startup route and seek angel investment or investor funding, a startup loan is perfect for a new small business. A ‘startup loan’ requires no business credit history to qualify, and focuses more on your personal finance and credit history. If your credit score needs a boost, check above for the two steps to boosting your credit score up to 100 points.
Read next: Research This Before Taking Out a Business Loan