Understandably, many business owners get the impression that applying for a business loan is a complex and overwhelming process.
This is especially true for those who would be applying for the first time.
Fortunately, nothing can be farther from the truth.
Calm your apprehensions and get a new insight on the modern-day process of business loan applications by finding out the truth about some of its most prevalent misconceptions:
The whole process will take forever.
While some bank loan applications can take some time, it is not true for all. Nowadays, there are plenty of lending institutions that process applications online and in minutes, with approvals done within hours, and the money given in a day.
This is good news for those business owners who need money and need it fast. With key considerations like SME loan interest rate, repayment schemes, and other factors to think about, the last thing borrowers need is waiting for days only to have their applications denied.
Fortunately, many lenders today are a lot less restrictive. Some would no longer require submitting financial statements, projections, or business plans. Instead, they’ll focus on monthly sales before denying or approving an application. This translates to faster response, less work for the borrower, and quicker access to the needed funds.
The more money you ask, the less likely your loan will be approved.
Chances are you’ve read about this business loan myth in Internet forums or you’ve heard about it from well-meaning family members and friends.
It’s all right to ask for money, a non-expert will tell you, as long as you don’t ask for too much. This is actually a sage advice for a child negotiating his allowance. Unfortunately, this should be filed under “gross misconception” in the business world.
As a general rule of thumb, a business should apply for what it needs—no more, no less. When deciding on the right amount, take into account crucial considerations like how much the SME loan interest rate is, how much money you need to grow, and how much you need to set aside to pay for your obligation, among others.
The most important business document you need to submit is the business plan.
While no discussion on business loans is complete without the business plan, contrary to common belief, it is not the most important document you need to present.
Sure, many consider it the holy grail of business documents but it is only a part of the equation. That means you can’t assume you’d get approval just because you presented a business plan.
However, a business plan (market analysis, executive summary, the whole 9 yards) is still a valuable tool that lenders might look for when you apply for a loan.
Nowadays, there are financial institutions that provide funding online and will not require business plans. However, if you want to apply for loans from banks, a business plan will still come in handy.
While a full-fledged business plan might not be a necessity, creating one will always work to your advantage. It helps you set milestones, anticipate business growth, and keep yourself accountable.
Myth: You need a flawless credit score to qualify
Truth: Many business owners believe that a perfect credit score is a must when applying for a loan. If truth be told, this belief is not all black and white.
True, banks are generally more restrictive when it comes to credit scores. However, banks and other nontraditional lenders often do business with people from both ends of the spectrum.
The bottom line: your credit score will not be the only factor that will determine whether you get the nod or not. There will be several other elements that will be taken into consideration and your credit score is just one of them.