5 Small Business Loan Myths Debunked

Financing is an operating essential on our startup business checklist.

One challenge of running a small business is that while you’re an expert on your business product, you’re not likely to be an expert on everything involved with running a small business. This means asking a lot of people for help and advice in some of the areas you’re not familiar with, and when you ask the wrong people, you sometimes end up with business myths that aren’t always correct. The financials of running a business is one key area that small business owners find especially challenging, so a lot of business financial myths arise out of this perfect storm. Here are five common myths of small business loans you’ve might have heard through the grapevine, that we would like to help debunk.

Don’t Believe These Small Business Loan Myths

1.   Your Credit Must Be Perfect

The Myth – Business credit is hard to get because business lending is riskier than personal lending. You must have spotless credit and a long history to even hope to get a business loan.

The Truth – Business credit is like all other kinds of credit. Unless your record is terrible or you don’t have any credit, chances are somebody will be willing to lend you the money. It will just cost more in interest and fees, so you’ll have to pencil in the true cost of the money and weigh it against how much it will make you. An alternative route is the new trend of platform lending from Kabbage, which uses other than your FICO score to decide whether or not to lend.

The Plan – Apply for credit at a bank where you already have accounts and relationships, or use alternative lenders who will look at your points of strength. Come prepared to discuss your credit frankly, and with a stellar business plan that shows why you’re less of a risk than your credit report suggests.

2.   Business Lending is Always Impersonal

The Myth Big banks and internet lenders use a faceless algorithm focused solely on finances to decide whether or not to lend a business money. Personal relationships, a strong following on social media or a great idea won’t do you any good.

The TruthLoan officers have power of discretion on fringe cases. If you apply for a loan two days after filing bankruptcy, no manner of relationship will help you…but if the algorithm says you’re a “maybe,” personal judgment still matters. Online lenders like Kabbage also use data tied to your social media and social selling accounts to determine how much money to lend. In both cases, your social connections mater.

The Plan – If you have the time, shop for a loan officer before shopping for a loan. You can meet bank representatives at local business groups like Rotary Club and Chamber of Commerce, and through the bank you have your business accounts. For online lending methods, spend a few months really targeting your social media, online sales and other social internet business platforms. Your data footprint can make a big difference.

3.   Small Business Loans Take a Long Time

The Myth – It will take weeks or months to move from starting a business loan application to receiving the money in your account. If you need money on the quick, it’s credit cards or nothing.

The TruthBanks often take a long time to research and fund a loan, but even the SBA can be quick if you have all of your ducks in a row before beginning the process. Some online lenders will begin a transfer within 24 hours of beginning your application, which means you’ll see the money within one to three days of starting the process.

The Plan Research what information your lenders need prior to when you’ll need the loan, then show up able to complete everything during the first session. This cuts down processing time by a week or more. If you’re in a real hurry – or expect to often be in a hurry – look into a line of credit from a traditional or online lender.

4.   You Can’t Get a Small-Sized Business Loan

The Myth – Business loans in low amounts aren’t profitable enough for a bank to bother with. Ask for six figures, or at least high five-figures, or don’t bother asking at all.

The TruthYes, business money and personal money are on different scales, so if you need $500 to tide you over until an account pays up, you’re better off borrowing the cash from yourself. That said, lenders of all stripes will approve business loans of only a few thousand dollars. You can also arrange for high-maximum credit lines, from which you can pull only the money you need at any given time. Kabbage is the only platform lender to offer lines of credit up to $100,000.

The PlanApply for a loan of exactly the size you need, including all accommodations for fees and other surprises. Make your business plan reflect what you ask for, so lenders know the loan is low-risk regardless of its size.

5.   Internet Lending is a Scam

The Myth All internet business lenders are universally predatory, using hidden fees and interest rates to take advantage of desperate entrepreneurs. They’re the payday loan shop of the web.

The Truth Many online loan providers like Kabbage offer simple fees and no hidden costs. Kabbage loans don’t have origination fees or prepayment penalties. You pay only for what you take.

The PlanDo your due diligence by checking resources like Better Business Bureau and RipOffReport.com, and ask for references. Do a quick search online for reviews of a company on sites like TrustPilot, and read a companies testimonials. Consider reaching out to people you know have used online lenders. Once you find a lender that checks out, you can look forward to a good lender-borrower relationship based on opportunity and respect.

Gaining access to capital doesn’t have to be so hard. With the right information and research, you can find the right lender for your business. It just takes a little bit of research and knowledge to get your business the working capital it needs to grow.

Jeanna Barrett is Head of Inbound & Content Marketing for Kabbagewhich pioneered the first financial services data and technology platform to provide small business loans. Unlike other lenders, Kabbage looks at your business data, not just a credit score, through our fully automated, online application. Kabbage has grown to become the #1 online provider of business working capital and is a Forbes Top 100 Most Promising Company. 

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