Getting a small business loan has been harder than ever since the 2008 financial crisis. However, it doesn’t help that there are plenty of myths floating around, which only serve to make a difficult process even more nerve-racking. Here are just a few of the more persistent misunderstandings about small business lending.
1 It takes forever to get approved
Banks could never be accused of acting quickly, but that doesn’t mean you have to wait weeks or months for a decision. With an alternative lender, you can apply online and receive a decision within as little as 24 hours. Indeed, if you’re applying for an emergency loan, you could have the funds from small business loans in your account in less than a day.
2 New businesses never get accepted
Having an established business is important to get funding, but it’s impossible to launch a business without funds. However, more and more lenders – including some of the more forward-thinking banks – are offering specialist start-up loans that do not require a proven business credit history. Where banks won’t lend, alternative lenders often will, and venture capitalists and business angels offer another route to success.
3 Online lenders charge through the nose
The alternative lending market is comparatively new, and as a consequence some businesses are wary of it. The situation has not been helped by a handful of unscrupulous lenders and brokers who have charged excessive rates and attached unreasonable conditions for small business loans. In reality, most alternative lenders offer single-digit rates, even to relatively risky borrowers, and will frequently consider companies that have been turned down by banks.
4 Decision-makers are only concerned with your credit score
Whilst this may be true of Loans Officers in banks, it is certainly not the case with alternative lenders. Many alternative lenders will forgive a damaged credit score if you can demonstrate a strong business plan, positive revenue history and sustainable cash flow, and with asset-based finance, where you borrow against your existing premises, plant or equipment, even these factors may be relatively unimportant. Of course, you should always endeavour to maintain an impeccable credit score by paying debts on time and carefully controlling your borrowing.
5 The computer says no
Over the years, one-on-one relationships between business borrowers and local bank managers have gradually disappeared and been replaced by centralised lending teams using one-size-fits-all criteria. However, it’s a myth that banks’ decisions are all made by machines and that your past relationship with the institution carries little or no weight. Alternative lenders are mainly concerned about your ability to repay, and your past behaviour will be taken as a strong indicator of your reliability.
When you need a small business loan, there’s every chance that an alternative lender will say yes if a bank declines. Separating myths from reality should place you on a firmer footing and give you the best chance of success.
As Managing Director of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business. Carl continues an ethos of working with distressed businesses to help them overcome their financial problems.