7 Small Business Loan Myths ... Busted

Getting a small business loan can be complicated, but don't believe everything you hear about the process. Here are seven small business loan myths you should think twice about: 

Myth No. 1: Getting a small business loan is the hardest thing you'll ever have to do.

While obtaining a loan for your small business is no easy feat, it doesn't have to be an insurmountable trial. Small business lending experts agree that you can best avoid such trouble by preparing for the challenges that applying for a small business loan may present.

"While there are challenges, a lot of the frustration around obtaining small business financing can be eased by doing your due diligence," said Michael Adam, the founder and CEO of Bankmybiz, a social media-style site that connects business owners with business funders, in an email interview with Business News Daily. "Be prepared and have all your documents ready to present to lenders."

Myth No. 2: You have to have perfect credit to get a small business loan.

Good news for those who think that bad personal credit means never owning or expanding a business. While low credit scores might have been a non-starter in years past, today's lending environment is actually more open to subpar credit ratings than ever before.

"While traditional banks may be restrictive when it comes to obtaining credit, there are alternative options," said Michael Kevitch, the president of Varsity Business Solutions, a business-funding consulting group, in an email interview with Business News Daily.

Alternative lending sites like those operated by Varsity Business Solutions (All Business Loans and Small Business Funding) tend to base lending decisions on the financial realities of a business rather than the financial history of business owners. Specifically, Kevitch said, alternative lenders take a close look at business performance, industry type, time in business and cash flow  before handing out a loan.

Myth No. 3: The best way to obtain a loan for my business is through a bank.

Think your bank is the best (or only) place to apply for a loan? Think again. Traditional lending institutions have been a mainstay of small business funding for many decades, and still are, in some industries. But they are not the only places (or necessarily the best places) to turn to for a loan.

For business owners looking to borrow a relatively small sum (between $5,000 and $250,000), getting a bank loan is likely to be more trouble than it's worth, said Kevitch, president of Varsity Business Solutions. But even he concedes that bank loans may still be a great option for business owners who need to borrow a significant chunk of cash, over a long period, and still get a low interest rate. But he warns business owners to make sure they fall under those categories before applying through a bank.

"You will be required to provide a lot of unnecessary documentation and most likely provide some sort of collateral," said Kevitch. "Alternative private banks and lenders can provide capital with much less hassle."

Kevitch also notes that getting a loan through an alternative lending source is usually much quicker than obtaining a bank loan. With a simple application, some bank statements, a photo ID and proof of ownership, business owners can have cash in hand in as little as seven days, he said.

Myth No. 4: The worst way to obtain a loan for my business is through a bank.

Bank loans might not be the best option for every small business, but they're far from the worst funding option  out there. In fact, for established businesses looking to grow at a moderate rate, traditional bank funding is generally a great option, said Adam, CEO of Bankmybiz. It's when a business doesn't fit those criteria that business owners should consider shopping around.

"If you are a younger company, pre-revenue or low revenue, but plan to grow very quickly due to the industry that you're in (i.e., healthcare, IT or software consulting), then a traditional bank loan may actually limit your growth," Adam said.

To decide whether a bank loan is right for your business, research both traditional loans and alternative funding sources. It's also important to know your business inside and out.

"If you anticipate steady growth over the next few years, then a traditional bank may be best," Adam said. "If you are growing like crazy, and you know you will need to keep increasing your loan size by large increments each quarter, then entertain a non-bank lending partner, as banks may not be able to keep up with your needs."

Myth No. 5: The more money you ask for, the less likely you are to be approved for a small business loan.

You might find this myth floating around Internet forums and perhaps even hear it from well-meaning friends and family members. It's all right to ask for money, the non-expert will tell you, just don't ask for too much. While this might be reasonable advice for a kid negotiating his allowance, it doesn't hold much water in the business world.

"A business should apply for what they need — not more, not less," said Evan Singer, general manager at SmartBizLoans, an automated online SBA loan program, in an interview with Business News Daily.

Singer recommends considering both how much money you really need to grow your business and how much money you can afford to pay back every month.

"Make sure that you have cash flow to make your loan payments," Singer said. "That's the biggest thing that a [lender] is going to check, that [the business owner] can actually afford to make their loan payments."

Myth No. 6: The most important thing you need in order to obtain a small business loan is a good business plan.

No discussion of small business funding would be complete without mention of the holy grail of small business documents: the business plan. There are multiple perspectives on whether or not a traditional business plan  (executive summary, market analysis — the whole 9 yards) still has a place in the loan application process.

Some funding experts seem to believe that the business plan, as a tool for measuring the likely success and fundability of a business, is a bit outdated. Singer said that while traditional banks might still require business plans during the loan application process, your business won't need a business plan to get an SBA loan online. Singer's company recently launched the first-ever fully online platform for SBA-guaranteed loan applications.

And while Bankmybiz CEO Adam agrees that most lenders won't require a full-fledged business plan, he does think that having a plan at the ready is always a good idea.

"Every business should have some sort of business plan," Adam said. "It's just a good practice to anticipate growth, set milestones and keep yourself accountable. If you don't have one, create one. You'll be glad you did in the long run."

Myth No. 7: If I need a loan fast, I can't get one through the Small Business Association (SBA).

Until very recently, this oft-repeated myth was more fact than fiction. The process of applying for an SBA-guaranteed loan traditionally started with an in-person visit to a local bank and could take up to four months to complete. For small business owners looking for cash in a hurry, an SBA-guaranteed loan was simply not a viable option.

But recent developments in the SBA loan application and underwriting process have made it possible for business owners to get the affordable, guaranteed loan they need much faster. SmartBizLoans has expedited the process of obtaining a loan through the SBA, said the company's general manager, Singer.

By automating the front-end application process for small business owners and the back-end underwriting and originating processes for banks, Smartbizloans makes it possible for small business owners to receive SBA-guaranteed funding in as soon as five days. The company's fully online application takes about 30 minutes to complete, and those who qualify can start receiving funds within five to seven days.

Source: http://www.businessnewsdaily.com/6178-small-business-loan-myths.html 

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