Are you a small business trying to get financed? If so, you’ve probably heard quite a bit about the process of applying for a loan. It’s important that you are educated and prepared so that when you do begin the application process, everything will go smoothly. Unfortunately, there is a lot of information spreading that just isn’t true. Here are three of the biggest small business financing myths that you may have heard:
Myth # 1: The SBA will give me a loan
This is a common belief among small companies that are just beginning to seek out financing. However, the SBA (Small Business Administration) doesn’t give loans. What they offer is a loan guarantee to participating lenders and banks. These can take a while to receive and will usually require a personal credit score of at least 650. If you are looking for immediate financing, this is likely not the best option for you. However, if you don’t need the money for a while, this can be a beneficial way to go, as these loans often have a lower interest rate than non-banks and can help pay for capital improvements in your business.
Myth # 2: Non-bank lenders should be your last option
Although money can often be easier to obtain through non-bank lenders, there are other reasons why companies choose to go with this option. The loan approval process can be very long at banks, taking weeks or even longer. However, non-bank lenders will usually speed this process along as they can have access to their funds within just days. Not only does this provide solutions for shorter-term financing, but it also allows for more flexibility, as businesses can now solve cash flow problems or take advantage of special offers almost immediately. This convenience gives companies more control over their small business financing and can often decrease the overall borrowing cost.
Myth # 3: You need to see your banker
Although the bank deals with all of your other finances, most small businesses are likely to be denied a loan. Unless you have a credit score of at least 680, are looking for a long-term loan, and have been around for multiple years, then you should probably look for financing elsewhere. Bankers will usually focus on the owner’s personal credit score, and if it is below 680, you will likely be denied. In addition, the process of obtaining money from a bank can be very long and slow, which is not ideal for companies who have short-term needs. This is why it can be very beneficial to go straight to non-bank lenders for your small business financing instead of wasting your time on banks, only to find that you have been denied.