4 Misconceptions about Small Business Financing

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How much do you really know about small business financing? Businesses that have been around for years as well as start-ups have several misconceptions when it comes to obtaining business capital.

The reasons for these misconceptions vary, but many business owners think traditional banks are not doing a good enough job of explaining their financing options, the requirements necessary to qualify for different types of business financing, how business credit is calculated and how lenders use business credit to deny or approve loan applications.

Four of the biggest misconceptions that we frequently hear from prospective clients are:

1. The Small Business Administration (SBA) is a Direct Lender.

The SBA does not make loans directly to small business owners. They do, however, make guaranteed loans through a variety of sources including banks and credit unions. The SBA guarantees a portion of the loan to reduce the risk to lenders, making lenders more likely to lend to smaller companies.

2. If my application is declined by traditional banks, I have no other options.

Banks are only one financing source available to small business owners. Other lending sources include alternative financing methods such as invoice factoring, credit unions or crowdfunding. The best option for you will depend on a range of factors, including how much financing you need, the length of time you have been in business, your business credit history and how quickly the financing is needed.

3. If I have no business credit or my business credit is not good, I can’t get business financing.

While traditional banks have increasingly made it more challenging for small business owners to obtain financing, a variety of alternative lenders are making it possible for small businesses to find the capital they need. Your business credit score is still important and you may have to pay a higher interest rate if your credit is not the best, but alternative lenders provide many options for you and your business.

4. Alternative lenders are too expensive.

In some cases alternative lenders can be more expensive than traditional bank lenders, but as demand for alternative financing has increased, prices have become much more competitive with traditional banks. Another advantage to working with alternative lenders is that the approval process is much faster than traditional banks. After speaking with an alternative lender, you will most likely be surprised at the affordable options that are available.

Whether you need financing today or you are planning for the future, now is the time to learn more about small business financing. I would love to hear from you, so please leave your comments below.

 

This article was written by La Mancha Sims from Business2Community and was legally licensed through the NewsCred publisher network.


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