Business owners can be cautious thinkers, looking out for every possible roadblock their business may encounter.
It is a both a blessing and a curse, as there are situations when it can serve a business owner well and other times being ultra conservative can be a hindrance. Often being over cautious is the case when it comes to small business loans.
It’s not as arduous to secure finances for your business as some people would think. There are a number of common myths surrounding small business loans which we’ve debunked below.
Myth 1: The Small Business Association of Australia (SBAA) directly provides business loans
The SBA is an organisation which advocates and supports Australian SMEs. Its primarily focus is to align with key stakeholders to achieve better economic policy for SMEs.
It provides resources and tools for SME owners to better run their businesses such as networking events, educational evenings and does not provide small business loans.
Myth 2: A bank is the only option for a small business loan
A bank is only one source of finance for a business; there are many other options available should a traditional lender not be able to assist with your loan requirements. Other funding includes merchant cash advance, an unsecured business loan, crowdfunding, and community loans, all of which are readily available and rapidly growing in adoption.
The application process for alternative lending, compared to banks, entails fewer prerequisites and more lenient evaluation, resulting in the quick procurement of funds.
Myth 3: No business plan = no loan
For a small business loan with a bank then yes this is the case.
The business plan outlines how profitable a company can potentially be if all the indicated measures are executed well.
Not having a business plan does not mean you can’t get access to finance.
Alternative lenders don’t require a business plan or financial statements to approve a loan. They assess the business as a whole including how long it’s been operating, the amount of monthly profits, credit history, and the amount of money you wish to borrow.
Myth 4: The amount of money applied for determines your qualification
There is a fear that a bank or a lending firm will deny a loan application if the loan amount is too large. However, the amount of money being lent is not a determinant. What they are more concerned about is your ability to consistently pay the premiums.
Worry more about your credit rating, business plan and documentation rather than the total loan amount.
Myth 5: Success dashes the need for small business loans
Business success eliminates some of the need for borrowed cash, but that does not mean you won’t benefit from a loan.
As a business flourishes, it will incur more needs such as improved technology, expansion or renovations.
There is the option to use cash from profits; however it can be more convenient if operating capital is left untouched in case of emergencies. Small business loans provide an instant financial boost whenever needed.
Myth 6: Bad credit automatically disqualifies you from getting a loan
Banks have unknowingly manufactured a myth with their stringent requirements. Having bad credit dissuades people from trying to secure a loan, since banks aren’t likely to provide finance
Alternative lenders are able to assist those with unfavourable credit scores and use other criteria to determine loan qualification. Demonstrating that your business stands to flourish and profit in the coming months, paving the way for larger and more frequent deposits or credit card sales.
Myth 7: Lengthy loan approval and processing time
Banks and traditional lenders can take months to process a loan application, and when running a business, many owners can’t wait that long especially when they need finance quickly.
Alternative lending provides some of the quickest ways to get a loan. Tailored financing programs enable potential debtors to be able to get funds in a few days, especially those who avail a merchant cash advance.
Many of the requirements are processed online, resulting in quick approval for applicants, and payment schemes are crafted to make the premiums manageable and allow for downturn.
John de Bree is the Managing Director, Capify Australia (formerly AUSvance) launched in Australia in 2008 and are the pioneers in unsecured alternative business finance. The only alternative finance lender to have undergone the full credit cycle Capify continues to be the industry leader; it was the first company to introduce Merchant Cash Advance Loans in 2008, followed by the introduction of unsecured business loans in 2012. Earlier this year it introduced online applications with a loan decision provided in 60 seconds or less.