Starting a new business or scaling a company requires a steady stream of cash to grow your operations. Small business loans are a great way to acquire the capital necessary to take your business to the next level. However, there are some common misconceptions about loan applications that prevent business owners from pursuing a loan.
These myths can impede you from making informed decisions when it comes to financing. Here are the three most common misconceptions about small business loan applications:
1. Getting a Business Loan is Hard
It’s understandable why many small business owners feel this way given the bank’s rate of rejection towards small business loan applications. Banks and other traditional lending institutions are notoriously hesitant to lend to small businesses for several reasons, including:
- Lack of collateral
- Lack of industry experience
- Poor credit history
- Weak business performance
It’s true, getting a business loan from banks can be difficult, but obtaining one from alternative lenders is easier than you may think.
Fintech refers to the new technology used to improve and automate financial services. Alternative online lenders use Fintech to assess borrowers’ creditworthiness through alternative data. Fintech also plays a huge role in processing online applications, making it faster and easier for business owners to apply for a loan.
Alternative online lenders primarily focus on the SME market. This means you’ll have a better chance of securing a loan from an alternative lender than from a bank. Generally, an online business loan application involves two steps:
- Fill out an online application form (which shouldn’t take more than 15 minutes of your time).
- Submit at least six months’ worth of bank statements.
And that’s it! Once you’ve submitted your online application, a financial advisor will accommodate you as soon as possible. Just like other forms of financing, securing a loan is all about preparedness. Doing your due diligence will save you from the frustrations that come with business loan applications.
2. Applying for a Business Loan Takes a Long Time
Ideally, small business owners should submit their loan application months before they actually need the money. But what happens if you need working capital ASAP? Alternative lending will work in your favor if you need access to cash fast.
Banks often have stringent requirements to prove a borrower’s creditworthiness. You’ll need to compile piles and piles of paperwork, head to your local bank, and wait for weeks (sometimes months) to receive funding, that is if you do qualify at all.
With alternative lending, business owners can complete an entire application in less than an hour and receive funding in as little as 24 to 48 hours. It’s the perfect solution for business owners with time-sensitive initiatives that need to be addressed immediately.
3. Small Business Loans Cost a Lot
This is probably the most common misconception about alternative lending and small business loans. Banks and other competing lending companies often emphasize an alternative loan’s annual percentage rate (APR) or the interest on the total loan amount.
But, if you compare alternative loans to bank loans, you’ll find that the total cost of an alternative loan isn’t too far off from conventional funding options. Considering the convenience and speed, alternative financing might be a better option.
Comparing loan options might require more legwork on your part, but it’s worth it if you end up with cost-effective and flexible financing solutions.
Secure a Small Business Loan Today!
Times have changed for SMEs as business owners can now easily obtain the money they need to grow their businesses. Before you apply for one, be sure to do your research, assess your business and don’t hesitate to reach out to financial advisors like SMB Compass.