Once the global financial crisis hit back in 2008-09, the banking and lending landscape changed quite quickly around the world, particularly in the United States. Banks changed their lending criteria seemingly overnight, and funds became much tougher for businesses access. Since that time, alternative lending institutions have cropped up to fill the gap.
However, all of these changes have meant that many entrepreneurs are worried about whether they will be able to get access to loan funds. As well, a large number of myths have sprung up around the lending process that can cause small-business owners unnecessary stress and even additional costs.
If you want to secure a loan soon to expand your venture, employ more staff, purchase office or warehouse space, launch a new range of products, or more, it’s important to ask questions about your business financing needs and be aware of some of the most prevalent myths going around. Read on for the lowdown on some of the main fallacies that need to be busted.
Myth #1: Funds Are Not Available
One of the most common myths that abound after the global financial crisis (or GFC) is that loan funds simply aren’t available for small businesses. As such, this puts many entrepreneurs off from even thinking about applying for funds. However, it is important to note that while it is more difficult to get a loan from a bank than it was ten years ago, the wide variety of other lending organizations that have popped up in recent years do help to fill the void.
In order to get access to loan funds, though, it is important for small-business owners to go about filling out their applications in the right way. This will help them to secure cash injections where others may not. To do so, you need to ensure that you have all of your company’s financial information completed and up to date, so that the lending organizations can see that its loans can be paid back in a timely manner. Information to be provided includes the last three to five years’ worth of tax returns, plus profit and loss statements, depreciation schedules and balance sheets. Projections are also worth including.
If you want to increase your chances of success, you should also provide lenders with a comprehensive business plan. This plan will show lenders that you have a solid plan for the future and a good understanding of your venture and the industry you’re in, and that you will be spending the money you borrow in a way that will help the business to generate additional revenue (rather than simply paying off bad debts). All in all, this will show that you and your business are worth investing in and are an acceptable risk.
Myth #2: Banks Are the Only or Best Option
As noted above, since American banks have tightened up their lending criteria in recent years and made it much harder for small business to get funding, many different lending companies have come on to the market to cater to demand. As such, banks are no longer the only lending option for entrepreneurs. There are now lots of boutique online lenders to consider, plus options such as crowdfunding sites, specialist industry lenders and more.
Many business owners, though, have been under the mistaken impression that banks are still the best option for loans. This is another myth. What is best for your business may not be the best for another venture, and vice versa.
It is necessary for all entrepreneurs to conduct research into the various lenders to find out what will be the best fit for their needs. This will vary according to many factors, such as the status of your business and its financial record, the amount of cash you want to borrow, your venture’s trading and credit history, and your industry’s growth potential, to name a few.
Myth #3: You Won’t Get a Loan Without a Perfect Credit History
Since the loan market tightened up after the GFC, another common myth that has pervaded is that entrepreneurs won’t get a loan approved if they and their businesses do not have perfect credit histories. If you have heard this rumor and have not bothered applying for a loan as a result, it’s time to think again.
While the financial background of a venture is typically a factor considered by most lenders, it is certainly not the only element they take into account. Organizations also look at things such as how much cash on hand a business has, its annual revenue and growth figures, and the number of years the venture has been trading. Furthermore, if business owners can offer up their personal collateral as security for a loan (e.g. their own houses, cars, and the like), this can also increase the chances of a loan getting approved.
Jackie Roberson is a content coordinator and contributor who creates quality articles for topics like technology, home life, and education. She studied business management and is continually building positive relationships with other publishers and the Internet community.