Monthly Archives: August 2017

Business Loan Myths Busted

Obtaining a loan for your small business is a great way to boost investment and even grow your business when the time is ripe. You might have heard some grumblings about small business loans: they’re hard to obtain; your credit has to be flawless; don’t ask for too much money or you’ll be denied. Fortunately, these prominent myths surrounding small business lending aren’t necessarily true.

It’s important to manage debt properly, but doing so can help grow your business at a faster rate than scrimping and saving. To help you obtain a small business loan for your company, Business News Daily spoke with finance experts to debunk six common myths about getting a business loan.

Myth No. 1: Getting a small business loan is the hardest thing you’ll ever have to do.
Like other forms of financing, obtaining a small business loan is all about preparation. Ensuring your books are transparent and you maintain the reserve liquidity to encourage the lender that you’ll be able to service your debt on time and consistently will lead to success. And experts agree the best way to avoid unnecessary snags is to prepare ahead of time for the application process.

“A lot of the frustration around obtaining small business financing can be eased by doing your due diligence,” said Michael Adam, founder and CEO of Bankmybiz, a site that connects business owners with business funders. “Be prepared, and have all your documents ready to present to lenders.”

Low credit scores are a concern for some lenders, but banks aren’t the only lenders out there. Alternative and private lenders are often able to offer more flexible terms, including which level of creditworthiness they can approve.

“While traditional banks may be restrictive when it comes to obtaining credit, there are alternative options,” said Michael Kevitch, president and founder of Small Business Funding.

Alternative lending sites such as Small Business Funding tend to base lending decisions on the financial realities of a business rather than the financial history of business owners. Specifically, Kevitch said, alternative lenders take a close look at business performance, industry type, time in business and cash flow before handing out a loan.

Tips to Easily Obtain Financing

Obtaining a small business loan can be difficult, but it doesn’t have to be a nightmare. Coming to the application process prepared can help you easily obtain the capital you need to bring your business to the next level. That means having all of your ducks in a row and showing the lender that you’re a reliable borrower who will pay back the loan on time.

Want to speed up the process and make the loan application process go more smoothly? Business News Daily spoke with small business financing experts to find out what you can do to improve your chances of getting that loan quickly and painlessly.

1. Keep your documents in order.
Transparency into the financial state of your business is an absolute must! The application process will be more seamless if you take the time to keep your financial, accounting and tax records up-to-date and accurate. Make sure your business has a system in place to keep everything organized. You might even consider hiring an accountant, said Mason Cole, co-founder of the law firm Cole Sadkin.

“Many small business owners attempt to save money by self-financing and handling their own bookkeeping,” Cole said. “However, this too frequently leads to owners ignoring the books when they get too busy. A good accountant will also help the owner to look at the books without emotion when making the tough decisions.”

2. Maintain good credit.
In addition to keeping track of your documents, make sure to pay your bills on time. You’ll have to meet some type of credit criteria, so it’s important to have the best credit possible. Avoid foreclosures, bankruptcies, charge-offs and late payments. While banks have different credit requirements, good credit is an essential part of the process.

This also means you should apply for one loan at a time! Lenders often require a credit report that can mildly impact your credit. Applying for too many loans at once could kill your chances of obtaining any financing, said Nate Masterson, director of HR for Maple Holistics.

“When submitting a full loan application, the lender will do what is called a ‘hard pull’ of your credit score, an action which can knock a few points off of your credit score. As a one-off this is not a big deal, but if you apply to many lenders, all of whom knock a few points off of your credit score, this will surely add up,” Masterson said. “Don’t bring your overall odds down by applying for as many loans as possible – start by applying for the loan that you have the best chance of securing and work from there.”

3. Know which type of loan you need.
Understanding the type of loan that works best for you is imperative. Applying for a highly scrutinized loan like a Small Business Administration (SBA) loan when all you need is a line of credit will greatly slow down the process and possibly even end in a denial.

“The biggest myths based around small business lending are that it is hard to get approved, expensive and takes too long to get done. The truth is that it depends on what program they are applying for,” said Jonathon Fodera, president of Sprout Lending. “If a business owner is looking for an SBA loan they have higher standards and take 30 to 90 days to complete. They will ask for much more documentation as well. If a business owner applies for a line of credit or merchant cash advance the requirements and documents needed are less stringent.”