The world is full of myths. Some are harmless, like the old wives’ tales about swimming after eating. But others—like the misconceptions surrounding small business loans—can be dangerous to your financial health.
That’s because these myths make it harder for people who need a loan to qualify for one in time to save their businesses or prevent bankruptcy.
There are many misconceptions about what it takes to qualify for a small business loan and what lenders are looking for when reviewing applications. Here’s a bit of insight into what’s fact and fiction in the world of business lending.
You Have to Have Perfect Credit
The biggest myth of them all is that if you have poor credit, you can’t receive approval for a small business loan—and the truth is just the opposite. Banks and lenders want to see collateral or steady income when they review your application, even if you don’t have excellent credit.
Of course, applying for business loans for bad credit empower aspiring small business owners from all financial backgrounds. As long as you have assets to put up for collateral and enough income, you have a good chance of getting approved.
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All Lenders Are the Same
Another myth is that all lenders offer the same rates and terms. The truth is that while most banks and online lenders follow some general rules when it comes to lending, each one has proprietary criteria for approving loans.
Religiously sticking with one lender can make or break your chances of acquiring funds in time.
Online lenders have a much different application process than traditional banks. You can start an application on their website and submit it from the same place, without having to visit a branch or talk to someone on the phone.
It may be worth looking into alternative routes if your traditional lenders aren’t meeting your needs.
It’ll Take Forever to Get Approved
Faster ways of getting your loan approved, like online lenders, present another myth: you won’t receive business funding in time because it takes too long.
The truth is that you probably don’t realize how fast some small business loans are approved—but if you go through traditional banks, it might take weeks or even months.
Online lenders can get your business a working capital loan in as few as forty-eight hours, so you have the cash you need to pay bills and keep operating while you wait for all of your paperwork to receive the rubber stamp.
You’ll Find Better Rates From Banks
Many traditional banks are also losing customers to peer-to-peer lending sites because these companies offer loans at lower interest rates than most financial institutions out there.
Keep in mind that this discrepancy is despite P2P lenders not being saddled with the expensive overhead and bureaucracy that bricks-and-mortar banks need to operate.
All Other Small Business Owners Receive Funding
It’s easy to feel left out when you read about all of these companies that got their approval for funding within just a few days or weeks.
Still, the truth is that many people who do qualify can’t get their applications approved because they lack collateral or steady income—or because they don’t have a high enough credit score.
These borrowers might be receiving funding, but that doesn’t mean you can’t stand a chance just as well. Banks and online lenders want to see collateral or steady income when they review your application, even if you don’t have a mind-blowing FICO score.
There’s No Way Around the High-Interest Cost
Lenders seem to think that because online lenders offer lower interest rates than traditional banks, they must be ripping off customers somehow. After all, how can it possibly be profitable for them if they’re charging less?
The truth is that online lending services can do what they do because they don’t need brick-and-mortar buildings or tons of employees. Instead, they reduce overhead by passing their savings on to borrowers thanks to digital processing techniques.
You’re Better off Walking Into a Branch and Applying in Person
Traditional banks might seem like an easy solution when you don’t want to deal with online applications or fill out paperwork that you’d instead not do during work hours. Still, the truth is that brick-and-mortar banks often turn away small businesses just as quickly as their online counterparts.
Moreover, even if they don’t deny your application outright, they will probably ask you to leave so they can discuss your proposal with their loan committee—which is not an efficient use of time for either party.
You Need Collateral Before You Can Secure Funding
As mentioned previously, banks and online lenders both look for collateral and income when they pre-qualify borrowers for loans.
However, there’s one big difference. Whereas banks might require collateral like real estate or stocks before they make any lending decision (even if you only need a relatively small amount), online lenders tend to ask for collateral later on in the process.
It’s easy to become overwhelmed with all of the small business funding myths out there. However, you can’t afford to be blinded by misinformation when it comes time to make your decision.