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Five Common Misconceptions About Small Business Lending


Jeffrey Bumbales

No matter how long your business has been around, the odds are pretty good that you’re going to encounter the need for small business financing in one way or another. The U.S. Small Business Administration reported that over $25 billion* in SBA-backed small business loans were given out in 2015 alone, and the number of small business loans in America is sure to increase as small businesses maintain their popularity.

So it’s safe to say that if you own your own small business, you’re going to have to get financing one day to help out – but do you know everything you need to before you start looking for a loan? There are a lot of common misconceptions and incorrect information out there about small business lending in general, and if you go into the world of business loans with the wrong information, it could cost you in the long run. Here are five of the more common misconceptions about small business loans and what the facts really are:

Misconception: Banks Are Your Only Option

Facts: Banks are one source, and perhaps the most well-known since they’ve been around for quite some time, but there’s actually a number of different financing methods out there that a lot of business owners may not even know about. Different options like crowdfunding, working capital loans, or even more traditional short-term loans can help get your small business the money it needs without having to deal with the time-tested (but frequently detrimental) method of talking to the bank.

Misconception: The SBA Is A Direct Lender

Facts: Speaking of banks, there’s a strong belief among many entrepreneurs that the SBA is a direct source of lending, when in fact this is not the case. The SBA is a government guarantee program that works with banks to both decrease the risk to the bank and help small businesses find the loans they need. That said, as these loans are all coming from the bank, it does carry a similar amount of effort and risk on your side, and small business financing provides a preferable alternative to dealing with banks in many situations.

Misconception: Small Business Lending Is Only Available If You Have Perfect Credit

Facts: While the banks still go by your credit score, many small business lenders have begun looking more holistically at the overall health and success of your business. In most cases, small business lenders such as Credibly will look at how long you’ve been in business, your daily account balances, and your monthly minimum deposit to get a better sense of how your business is performing – a factor that simply checking a credit score may not always be able to accurately determine.

Misconception: Asking For A Larger Amount Lowers Your Chances Of Approval

Facts: While it is a big factor in the decision of your lender, it isn’t the be-all, end-all of your approval chances. Similarly to your credit score, in most cases, a number of factors for your business will be considered ranging from available collateral and current cash flow to revenue projections and even time spent in operation are factored in as well. And even if your chosen lender is unable to provide the loan you requested, you may be able to explore options such as a smaller loan with a shorter term to provide bridge financing until a larger loan can be obtained.

Misconception: Only Struggling Businesses Apply For Loans

Facts: Businesses of any health can apply for small business financing – in fact, many highly successful businesses rely on quick injections of external financing to help with future growth and development. Loan types like business expansion financing exist to help growing companies support their plans of expansion and growth, and many healthy and successful businesses rely on small business loans to get fast access to money that they might already have tied up in other projects to help their business get to where it needs to be.

Hopefully, now that some of these myths have been busted, you’ve got a better idea of what small business loans can do for your business. Still got any questions? We’re happy to help. Contact Credibly today and we’ll get you what you need to know – and what you need to grow your business.

*Source: https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_Lending_Statistics_for_Major_Programs_as_of_09-23-2016.pdf