Myth 1. A Personal Loan Is A Better Than A Business Loan
Personal loans are probably the most expensive types of loans in the market, and you can get a business loan at a much lower cost. Based on your credit rating, personal loans can come with interest rates of as much as 30% per year. Possibly the only benefit of a personal loan is that you may use the funding without any regulations, however the flexibility might be probably nullified by means of the higher cost of the loan. Additionally, remember the fact that a business loan can be eligible for tax benefits.
Myth 2. Using Business Loan For Anything
Nobody will lend your small business for no apparent reason. Lenders require reassurance that you can repay them. They feel confident when they know how you will use the borrowed amount and the way that will help your small business. Being clear about your objectives shows them that you’ve great business case. You can experience some sort of penalties in case you use your business loan for an undisclosed objective. The lenders will be most impressed in case you are open regarding your requirements.
Myth 3. Using Savings Rather Than Taking A Business Loan
It’s imprudent or even quite risky to use your personal savings in your business. In the unlucky event that your small business fails to start, not having any personal savings to fall back on can cause pointless financial issues. As a result, you will have to borrow again at a high interest rate to finance your daily operational expenses.
Myth 4. Online Lending Is Scary
The alternative small business financing industry has grown gradually since the Great Recession. At present, there are so many online small business lenders that are completely reasonable. The matter is not whether you can look them in the eye. It’s all about reliance and trust. In case you’re considering alternative financing for your small business, it’s very important for you to take reasonable steps. Look around for a lender who has reliable and successful experience working with other businesses. Ask them about the type of funding they offer to businesses, costs as well as their repayment terms.
Myth 5. Lenders Preferably Consider Credit Score
It is right that most of the banks rely closely on credit scores. However the alternative financing lenders don’t particularly focusing on single factor. Every business has its own standards; however they look at an extensive range of factors. So don’t get depressed in case your bank rejects you for a business loan. Accounts receivable financing, business cash advance or some other alternative funding options may be a good option. Even if your credit isn’t that good, you still can get the help of alternative lending. However it is advised to improve your credit before applying for any funding.
Myth 6. Personal Credit Score Will Not Effect Loan Application
As the primary focus while considering your loan application is the health of your business, your personal credit history is also an important consideration from the lender’s perspective. It provides the lender with an accurate idea of your financial behavior. In case you have an excellent credit score, your odds of being approved for a business loan are higher.
Myth 7. Why Go To Bank When I Can Get A Loan From SBA
This is an unusual misconception. The Small Business Administration (SBA) does not provide loan. The agency does guarantee the business loans. It is the same as having a co-signer for a personal loan. In the event you fail to pay off the borrowed amount, the lender will not lose the principal they loaned you. For so many businesses, this improves your odds of approval. You also can apply for an SBA-backed loan through banks, credit unions, and from many other alternative business lending sources. However there are also so many myths about that, as well. You may probably have heard from somewhere that the lending process of SBA-backed programs takes too long. That was true in the past, however at present the SBA streamlined its lending process. You probably heard that only new businesses can get an SBA loan that’s also not true.
Be careful when you are looking for a lender. Look for a lender who understands the ups and downs of your business well. It is also advised to prefer the lender who has A+ rating with Better Business Bureau (BBB). And avoid lenders that require an upfront fee.