If you're like most business owners, the idea of applying for a loan or line of credit can be intimidating. And when you don't have a lot of experience with finance, it's easy to develop misconceptions about how business funding works. The good news is that you don't have to be an expert in order to get approved for financing; in fact, many people who apply for loans and lines of credit aren't experts. However, there are some common myths about financing that might make the process seem more difficult than it actually is.
In this post, we'll discuss four common misconceptions about business funding so that you can put your mind at ease if someone tells you one of these myths:
Many people believe that they must be profitable before they can get financing, but this isn't the case. There are many types of loans available to small businesses, and each type has its own requirements. You may qualify for additional funding even if you're not yet turning a profit. For example, if you have steady sales but have been unable or unwilling to invest in scaling up your operations—for example, by purchasing new equipment—you might want to consider getting an equipment finance loan. It's also possible to get financing from banks or other financial institutions if your business needs cash flow in order to pay off debts or meet payroll obligations (think lines of credit).
In short: If you think that getting financing would help your bottom line grow rapidly enough over time so that it makes sense for both parties involved (i.e., yourself and any lender), then there's no reason why someone won't give it serious consideration.
You don't need to have excellent credit in order to qualify for funding. While it's true that you'll generally have an easier time getting approved for a loan if you have a good credit score, there are exceptions. If your business is new and has no history of payment, or if it's been in operation for less than two years, lenders will be more likely to make the exception and approve your application despite any imperfections in your personal finances.
If one of the reasons why you haven't been able to secure funding is because banks perceive risk; then being prepared with collateral can help alleviate their fears that they won't get their money back from you. The "value" of this collateral isn't what matters; what matters is whether or not the bank views it as valuable enough such that its loss would negatively affect whatever financial situation or default risk they're concerned about.
You don't need to have collateral in order to get approved for a business funding option. There are many different types of business financing options, such as small business loans and credit cards, where you won't be required to put up any collateral.
The most common type of business funding is a small business loan, which usually requires some form of collateral (such as your car or home). However, there are some exceptions: For example, microloans are small-dollar loans made by non-profit lenders who focus on helping low-income entrepreneurs start businesses and grow existing ones. These loans don’t require any kind of collateral whatsoever; you just need proof that you can pay back the money you borrow.
Choosing the right type of small business loan will depend on your unique situation and goals as an entrepreneur. It's important that before applying for financing with any lender you make sure they offer what kind of products/services best meet your needs and budget requirements by doing research beforehand to be better prepared ahead of time.
Another common misconception about business funding is that there's no way to expedite the application process. If you're in a hurry, though, there are some things you can do to get your application processed faster.
For example, if your bank agrees to process your application more quickly than usual—for an additional fee—you may be able to have it processed within 24 hours instead of waiting for several weeks or months. Some banks also offer their own "express processing" service: if they feel confident that they'll approve your loan request when they look at it, they might speed up the review process by handling those applications themselves rather than sending them on to regional branches or divisions for final approval.
As long as these services don't cost too much money (and some can be quite expensive), it may make sense for businesses with time-sensitive needs (like real estate developers) who really need capital now rather than next year or next quarter but won't qualify for traditional loans from banks anyway because of their lack of collateral or personal credit history.
You already know that financing your business can seem like a mysterious, intimidating process. But it doesn't need to be.
Here's the thing: you don't need collateral or two years of profits in the bank before you can get funding for your startup. You don't need excellent credit. And yes, there are lenders who will lend money to small businesses without requiring all those things; or any other requirements that might trip up a borrower whose venture is still an idea on paper but not yet ready to make revenue at scale.
Common misconceptions about business funding such as not understanding what you need, thinking that your business is not worthy or doesn't deserve funding, and being afraid of rejection, may prevent many entrepreneurs from getting the funding they need for their business. It's true that there are a lot of options available and they're not all created equal, but that doesn't mean you can't find one that works for your business.