Whether you plan to start a new business in 2016, or are looking for funds to expand your company, employ more staff, purchase larger facilities, or launch a new product, it pays to understand the best way to go about sourcing affordable business capital.
However, since the global financial crisis a few years ago, the banking and funding landscape has changed quite significantly, and many entrepreneurs are confused about if they can actually secure funding, and if so, what the best way to go about it might be.
If you’re like to gain access to some extra cash over the coming months, it pays to be aware of some of the most common business loan myths going around that just aren’t applicable in today’s market. Read on for a rundown on some of the fallacies that you should know about.
Funding Isn’t Available, Especially From Banks
Many entrepreneurs don’t even bother trying to obtain a loan for their business because they mistakenly think that there just aren’t any funds available. This is not actually the case though. While it can certainly be harder to get a small business loan from a traditional bank these days, with lending criteria typically very strict, a number of different lending organizations have sprung up, or diversified their offerings, in order to cater to the market. No longer are banks the only places to go for funds.
Just start to do some research into alternative lenders and you’ll likely be amazed by the number of institutions providing small and large funds, from businesses as big as PayPal, to smaller, online boutique firms. Whether you need to borrow a small amount of capital to get your business started, or larger amounts of cash to fund expansion, you’re sure to find what you need.
Indeed, while many business owners mistakenly believe that a bank loan is the best way to go, this is often not the case. Make sure that you compare all of the different options available, as you may very well find alternative lenders with great rates. Funding offers vary hugely from lender to lender, according to things such as your company’s trading history, credit rate, and the amount you wish to borrow.
Keep in mind too that the more work and planning you put into applying for loans — no matter which organization you contact — the better your chances of receiving funds will be. To give yourself the best possible chance of success, make sure you have all of your company’s finances up to date (including things like the most recent tax return, profit and loss statement, and the like), and that you have written a comprehensive business plan. The majority of lenders will always need to see these documents, at a minimum, before they will even consider authorizing a loan.
Credit Histories Must Be Perfect
One myth that has many entrepreneurs worried is that credit histories must be perfect in order to gain access to capital. While it is true that the tightening of the loan market means that top credit ratings make it easier to get a loan, especially from banks, it is not necessary. If you have put off applying for some much-needed funds because of a less-than-perfect credit score, you should re-evaluate.
Be aware that lending institutions take many more factors into consideration than just credit histories. For examples, organizations examine things such as the cash on hand in a business, its annual revenue, the number of the years the company has been trading for, and potential growth. In addition, the ability to offer personal collateral (such as a house) as security against a loan, will also make a difference to your chances of approval.
Loans Take a Long Time to Be Finalized
Another common myth around business loans is that they always take a long time to be approved and then actioned. In the past banks could take as long as they liked to sort through applications and provide a response. Today though, the process is typically much quicker, due in large part to the benefits of technology, and increased competition.
Rather than having to set up an appointment with a lender so that you can fill out a variety of forms in person and submit document after document by hand, now you can simply fill out and submit application forms online, at any time of the day or night.
These days many lenders (especially the purely online organizations), typically offer a very quick turnaround. If you have all of your financial records and other data in order before you start the process, you’ll even find that loans can sometimes be approved, and funds waiting in a bank account, within just one to two business days.
