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7 common small business loan myths busted

Many small businesses will require a loan at some point. Whether it’s for working capital, expansion, to purchase fixed assets, improving services or updating your premises, companies can require access to cash for a wide range of purposes.  

However, there are lots of misconceptions associated with business loans, which can cause confusion amongst small business owners.

If you’re in the dark about business loans or you’re looking to separate fact from fiction, we’ve busted the seven most common myths here.

Myth 1: You need to have a perfect credit rating to get a loan

One of the biggest misconceptions that small businesses face when it comes to securing a loan is that you need a perfect credit rating. In reality, businesses with a bad credit history can actually qualify for a small business loan too.

Of course, the better your credit rating is, the easier it is to borrow and the more deals you will have to choose from. However, you certainly shouldn’t assume a loan is off limits if your business doesn’t have the perfect credit score.

There are specific loans designed for businesses who are currently building their credit score, for example. You should expect to pay a higher interest rate with these types of loans, but if you’re really in need of cash it’s worth considering.

Myth 2: Only banks can provide business loans

People always seem to equate loans with high street banks. Again, this is not true. There are plenty of other lenders out there specialising in providing loans to small businesses. And, although many banks provide great deals on business loans, there are also other lenders providing tailored loans to meet your business needs.

With this in mind, it’s certainly worthwhile shopping around for your business loan and weighing up all of your options.

Myth 3: Loan applications are time consuming

Although you’ll need to provide a lot of detailed information about your business when applying for a loan, the process is nowhere near as long and complex as you might think. Thanks to advances in technology, applications can now be completed quickly and easily online. In some cases, you can even receive the money in your bank account the same day.

Many online facilities allow you to review pre-approved loans, offering a list of potential lenders and their rates. You will also find that the loan approval rate from alternative lenders is a lot quicker than traditional banks.

Myth 4: Small businesses cannot apply for larger loans

Many businesses assume that, just because they are small, they can’t apply for larger loans.  But this is certainly not the case. Many lenders will look into requests for larger loans, including mainstream banks. With this in mind, you shouldn’t feel put off from applying.

However, if you are a small business looking to apply for a larger sum of money, you will need to show that you will be able to pay the loan back. With this in mind, you should have evidence ready to confirm to your lender that you are in a sound position financially to pay back the loan.

Many lenders will also ask to see a thorough business plan outlining all cash projections and business goals. They will use this to help make their final decision.

Myth 5: Businesses that are failing need a loan

Many small businesses see applying for a loan as a step back. But, in fact, any cash injection can play a crucial role in accelerating your business and helping you to achieve your objectives.

Whether you need new equipment or technology, or you’re looking to offer a new product or service, there are plenty of reasons why a successful business might need a business loan. It’s certainly not a sign of a failing business.

Myth 6: If you ask for too much money, you will get rejected

The amount of money you request doesn’t impact your approval chance, and despite popular belief, lenders actually prefer to provide larger loans as they will receive more money back over time. Before you begin the application process, you should figure out how much you need to borrow in total and how much you can afford to pay back on a monthly basis.

Just remember the lender will have to check your cashflow and be confident in the knowledge that you will be able to make your repayment payments.

Myth 7: Getting a loan for a startup is almost impossible

Almost every startup business needs some sort of loan or funding to help them to get on their feet. And it’s simply not true that startup businesses won’t qualify for a loan. There are lots of specialist lenders offering startup loans that are aimed specifically at businesses with little or no credit history.

However, you should be aware that your personal credit rating will be taken into account during the application process.

Finally, when it comes to applying for a loan, don’t be afraid to take your time and do your research to find the best deal for your business needs.

How to get a small business loan

At Fluidly, we can take the hassle out of searching for the perfect loan with our business loan calculator.

Simply tell us your company name and we can match you with pre-qualified funding offers from a range of lenders in seconds, including CBILS providers.

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