Obtaining business financing can seem daunting at first, but it's probably easier than you think. This is because there's a lot of misinformation surrounding business financing that makes it seem difficult or impossible for small business owners to access financial support. These false and downright toxic myths are often spread by borrowers who’ve had bad experiences with big banks and financial institutions in the past.
What you need to know is that business financing is not one-size-fits-all, and each business is unique from a financial standpoint. So, spotty financing experiences here and there do not show the whole picture.
Don't let misleading myths and misconceptions stop you from leveraging business financing. Get your facts right and block out the noise. Make sure you’re not falling for any of these unfounded myths about small business loans and financing:
Myth #1: Financing only works for big firms
Some small business owners shy away from loans and other forms of financing, believing they're only meant for large firms. This is just not true. Most alternative lenders and even some mainstream banks readily fund small businesses just as well as big ones. For example, the Small Business Administration (SBA), an independent federal agency, provides several financing programs exclusively to small businesses.
The size of your business doesn’t matter to lenders, as long as your ask is reasonably within the business’s means.
Myth #2: Only banks can provide loans
Most people immediately associate banks with any talk of financing. While traditional banks are a staple in the financing scene, many of them are rather reluctant to fund small businesses and start-ups. Banks mostly lend to well-established businesses with stable cash flows and growth curves. If you’re looking for a small loan for your new business, with low credit and cash flow, the bank is probably not your best financing solution.
You’ll likely have better chances with non-bank funders such as micro-lenders, credit unions, peer-to-peer networks, merchants, and institutional lenders. In fact, multiple reports show that more and more entrepreneurs are opting for non-bank financing due to higher approval rates and other borrowing conveniences.
Myth #3: Your credit score must be impeccable to get financing
Lenders do assess business and even personal credit when gauging eligibility for financing, particularly for loan approval. But this is not the case with every lender. You’ll mostly see strong credit as a loan requirement among big banks.
You can still get financing even with bad business credit. Many alternative lenders have more progressive ways of judging business health besides credit history.
Myth #4: It’s all debt
Business financing is not all debt. There are many different types of business financing where you don’t have to repay the lender in cash. For example, you can get funding from an investor in exchange for shares or equity in the business. Alternatively, you can crowdfund and repay the funders through your business’s offerings. Government and institutional grants are also viable non-debt funding avenues for some businesses.
If you’re not willing to take on debt, there’s still a wide range of financing products that would suit you.
Myth #5: The more you ask, the worse your chances
Some people believe that asking for too much money is a mistake. The truth is, it’s not really the amount that matters but it's appropriateness. The lender will determine if the ask is reasonable enough based on the nature of your business and what you need the money for. So, run your numbers diligently and ask for exactly what you need. Just make sure it’s within your means and the limits stipulated by the lender.
Myth #6: You should only go for a loan when your business is failing
Although business financing doesn’t carry much of a stigma nowadays, some entrepreneurs still see it as a desperate attempt to save a dying business. Yes, you can take a business loan or other financing when caught in a pickle. But that doesn’t mean financing is just a way out of money troubles.
There are plenty of reasons why a thriving business would need a cash injection. For instance, financing can help you accelerate growth by boosting business operations and enabling access to otherwise unreachable resources.
Taking financing is certainly not a sign of business failure. And a business doesn’t have to be struggling to seek financing either.
Myth #7: Lenders charge through the nose
It’s nearly impossible to pin down the average cost of business financing because fees and interest rates vary widely between lenders and the various products. But it's wrong to assume unreasonably high costs. Alternative lenders, the SBA, and large banks gladly offer business loans with single-digit rates, even to high-risk borrowers.
However, there'll always be a handful of unscrupulous brokers and lenders looking to prey on businesses. This lot gives financing a bad name by marking up their products with ridiculously high rates and fees. Be wary of these financing predators when looking for business funding.
Myth #8: Only the data decides
Business financing is more than just a numbers game. It might seem like lenders and banks just feed your data into a machine that determines your financing fate. But that’s not entirely true.
In addition to facts and figures, human interaction still plays a major part in the lending process. After receiving your application, most lenders will ask for an interview or even a site visit before making their final decision. Your qualities as an individual and entrepreneur might actually make a greater impression on the lender than your numbers.
So, the figures don’t exactly have to add up for you to get financing. Most lenders will give you a chance to personally make the borrowing case for your business.
Myth #9: You can’t qualify without collateral
Some financing products, mostly loans, do require collateral. These are called “secured” loans. But there are also “unsecured” loans and financing that do not require any collateral. You can definitely get business financing approval without surrendering any of your business assets as security simply by opting for unsecured products.
Some lenders can also waive the collateral requirements for secured financing if your business demonstrates unquestionable creditworthiness. Others might ask for a personal guarantee if the business lacks enough high-value assets to serve as collateral. A personal guarantee is where you pledge personal belongings as collateral for a business loan. Like credit scores, lenders may look the other way when it comes to collateral, at least in the right circumstances.
Myth #10: You don't need help with financing
The truth is, the process of seeking out the right type of financing is slow, painstaking, tiresome, and inefficient. Some lenders can process financing products — from application and approval to disbursement — in just a matter of hours or a few days. You just have to know where to look and how to approach the right lenders.
But even researching lenders can be a lengthy, messy, and discouraging ordeal. In fact, shopping for financing is no easy job. It'll take a lot of time and effort to research multiple lenders while comparing their terms, loan requirements, conditions, and processing timeframes to find the best financing solution all on your own. But a helping hand from Lendzero can save you all that hassle and time.
Lendzero is an online small business financing assistant that does all the lending research for you. Our system matches your business with various financing solutions from multiple lenders. What’s more, we pre-negotiate each deal with the lender for the best possible terms. All you have to do is pick the option or lender that fits your bill. Sign up with Lendzero and put this incredible power at your fingertips.
