Business Loan Myths that should be Erased from the Mind

Business Loan Myths that should be Erased from the Mind
Business Loan Myths that should be Erased from the Mind
September 23, 2016

The road to becoming an entrepreneur is a steep one. Important decisions will need to be made and you will have to take full responsibility of such decisions you have made. The noise on your way up this steep profession is often noisy because you will get to hear many ideas from different people but take note that it is not all you hear that are true.

Every business needs money to grow

As an entrepreneur or an aspiring entrepreneur, one thing that you would notice quickly is the vital role finance plays in businesses. The sad truth is that financing is not readily available and whenever you come across one, they are laden with so many conditions that you may feel reluctant about going for them. Many business loans misconceptions have been spread and if you have ever heard any of the misconceptions, your inertia to taking up loans will increase.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

Some of the misconceptions come from people who are not in tune with recent information on business

There are some business practices that used to be the normal practice but have been swept away by time now. Those who are not aware of the recent changes in business will still stick to this old knowledge. A few of the misconceptions are discussed below;

1. Loans can only be obtained from banks

Banks may be the only source of loans in the past but that is not the case anymore. The ways in which an entrepreneur can source for funds continues to increase. The internet has had great influence on this. The currently available sources of funding include online lenders, venture capitalist, business lending companies, NBFCs and crowdfunding.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

2. You do not need a business plan to start a business

Well, the popularity of this maxim may be connected with the rate of failure of most businesses a few years after they have been set up. A business without a business plan is like a man going on a long journey for which he has no direction. A business plan summarizes all the business activity and projections (target market, financing method, projected revenue and so on).

3. You can grab money from wherever it comes

Before you plan to take up any loan, take the pain of going through the terms of the loan. The terms attached to some loans are so stringent that they can harm your business instead of helping it to grow. The interest rate of any loan should be of great concern to the entrepreneur. If you cannot take the decision alone, consult a business financial advisor.

Read also: What You Never Knew about the Small Business Administration Loans

4. Poor credit score means no loan

Commercial banks still us high credit score as the criteria for giving out loans and this has helped to further boost this myth. On the contrary, some of the new forms of lenders usually have different other criteria they will require to give out loan – even a poor credit score will get you a loan with them.

5. A loan is an additional burden

The startup of businesses is mostly financially involving and while thinking of a new office space, you may consider a loan too much of an additional burden. However, it is better to go for a loan than investing in new office space.

6. The documentation for loans takes an awfully long time

This is not the case anymore especially with the emerging lenders. Some of the new lenders process and give out loan facility to their clients within 48 hours. This has challenged the conventional bank delays.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • A number of business loan myths have been spread over the years.
  • The internet has changed the way of doing business.
  • The early stages of a business are financially involving.
  • Business misconceptions are spread by those who do not have access to recent information.
  • Loans can be obtained from different sources other than banks.
  • It is good to scrutinize the interest of a loan before taking it.
  • Documentation time for loans has been sliced.
  • One can get loan in 48 hours now.
  • Credit score is no longer a problem.
  • Business plan is paramount for any business.
  • Getting finance is one of the challenges entrepreneurs face.

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