5 Myths About Business Loans

Updated on: 04 Jan 2024 // 4 min read // Business Loans
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Almost every entrepreneur, who has a vision of starting a new business or expanding an existing one, has a single concern. This involves obtaining strong financial backing from the right source. After all, to make your business dreams a reality, you need adequate funds to back you up. The best way to overcome such a situation is by going in for a business loan that helps in boosting your investment. Although business loans are a savior, many people engaged in business are confused and trapped by the myths surrounding it.

Misinformation can be a huge price to pay since it can cost you a relatively reliable and convenient Business Loan. To avoid these misconceptions surrounding structured funding and to make your business visions come true, here are five Business Loan myths debunked for you.

Myth 1: You have to have a perfect credit score

Yes, although maintaining a healthy credit score indeed reflects signs of sound financial stability, it does not stand as the only criterion for obtaining quick business loans. Taking into account the credit score of the business and its promoters is something lenders do. However, they do not base their decision and conclude, whether they are going to offer you a loan or not, based on this condition alone.

At the beginning of the loan approval process, your credit score is taken into consideration. But after looking into this aspect, lenders also look into factors such as revenue model, the current financial situation as well as cash flow. Nevertheless, investing time and effort into building an excellent credit rating is always beneficial.

Myth 2: Obtaining a loan is difficult if the amount is small

Just because you are opting for a Business Loan does not mean you need to go in for a significant loan amount. If it suits your requirements, going in for it is apparently the right thing to do. This does not mean that heading to a lender for a loan amount that is small is a bad idea. If you need one, Apply for a business loan, regardless of whether the loan amount is small or big.

Fulfilling the eligibility criteria is all that is required when it comes to obtaining a Business Loan for a small or big enterprise. Having the required documentation, a reasonably good credit score and clear and productive business plan ready help in giving you the amount financial support you require, regardless of whether you own a micro, small, medium or large business.

Myth 3: Loan application, approval and disbursement takes forever

Many individuals are under the impression that loan approval moves forward at a slow pace. Having your business plan, documents and credit score in place plays a significant role in speeding up the loan approval process. A sound business proposition from your side does not come with a long consideration process from the bank’s side. It is only as short or as long as you make it to be.

Filling up an application form correctly and in entirety, and submitting the required documents to your lending institution helps in drastically speeding up the entire process. You can get instant business loans after document submission, as the approval process is simple. Once the bank sanctions the loan, disbursement takes a few days.

Myth 4: Going in for a Personal Loan is way better than a Business Loan

Personal Loans come with the advantage of a faster processing rate, but it does come with its drawbacks. For instance, interest rates on Personal Loans are higher while the maximum loan amount that you can avail of is much lower than on a Business Loan. Availing a personal loan also means mentioning your name and not your business or company’s name. This has an impact on your personal credit history. Building your business’ credit history is also not possible if you follow this way.

In case your business goes through a low point, it will directly impact your credit record. Going in for a Business Loan for your enterprise ventures is advisable. This plays a major role in helping you keep your personal and company finances separate. While filing taxes, the loan is shown in the business records.

Myth 5: The interest rate is the only important aspect to bear in mind

Finding ways to save money is normal and always wise. But this doesn’t mean that it should be the only deciding factor when obtaining fast Business Loans. Taking into account processing fees, tenure and other charges and also including prepayment penalty, repayment schedule as well as terms and conditions is imperative.

The interest rate you obtain should not be the sole deciding factor. Taking a more holistic viewpoint, when availing a business loan, plays a function in helping you get maximum benefits.

If you are wondering, “can I get a business loan that benefits me my business in the long run” regardless of the myths surrounding it, the answer is you most certainly can. Our attempt to set straight these misunderstandings ensures you have a better understanding of what to expect when trying to obtain a business loan. The team at MyMoneyMantra can help you find the perfect business loan for your venture.