Busting the 7 Myths About Small Business Loan Requirements

As you prepare to open a new small business there are many details to attend to. Creating a business plan is one of the most important and time-consuming tasks that you will encounter but the time is a good investment.

This document helps you to plan for the early days of your company as well as its growth over the next few years and hopefully long into the future. With a completed business plan, you now have an idea of the funding that you will need to sustain your business until payments come in and you have good cash flow.

One of the first resources that most small business owner look into for funding is the Small Business Administration (SBA). Unfortunately, there are all too many myths circulating about small business loan requirements which scare off many potential beneficiaries of the service.

Knowing the truth about these theories will remove much of the nervous anticipation that turns business owners away from this great resource.

You Apply for a Loan from the SBA

You Apply for a Loan from the SBA. The SBA is an organization which works with small business owners on several fronts, not just lending, but they do not actually lend money. Instead, the SBA has a list of approved lenders that they work with to assist in providing

The SBA is an organization which works with small business owners on several fronts, not just lending, but they do not actually lend money. Instead, the SBA has a list of approved lenders that they work with to assist in providing low-interest loans to small businesses. The SBA staff is simply there to assist the business owner in completing the application, answering general questions and providing guidance.

It Takes a Long Time to Process an SBA Loan

Recently the SBA has worked with its approved lenders to streamline the loan application and approval process. Currently, it takes about the same length of time to get approval on an SBA loan as it does to get approval for a conventional loan. Having all of your documentation in order, including a detailed business plan, will help in speeding up the loan application process.

A Bad Credit Score makes it Impossible to Get an SBA Loan

Both your personal credit score and the credit score of your business are the biggest factor in determining your qualification for any traditional loan. But months of on time payments and careful use of existing credit can increase a credit score by almost 100 points. In addition, lenders are interested in other factors that will determine if your business will be in a position to repay the loan. Sharing your research and projections from your business plan will assist the lender in understanding your company’s potential for growth, expansion and profitability.

Only Banks Provide Small Business Loans

Most small business loans are processed through banks and credit unions but there are other sources available. There are some businesses which only process business loans as well as individuals who lend to new businesses. These “angel investors” normally require some percentage of ownership in return for the use of their money. But they are also more likely to lend money based on the potential growth of the company and its business merit rather than just a credit score, making this a good option for someone with a lower credit score or no credit history.

The Larger Your Request, the Less Likely You are to Get Approved

As with any loan, it is wise to ask for the amount of money that you really need. Asking for more than you need is simply wasteful. You might have some extra money in the bank but you are certainly paying more interest on the loan that you are getting paid from your bank for the money sitting in your account.

For example, if getting a loan against your car, ask for the amount that you feel you really need to be able to grow your business comfortably. But also balance that with a number which will have a monthly payment that you are comfortable with and can regularly make. From the bank’s perspective, they actually like to loan larger sums of money because they will earn more back in interest. However, their first priority is seeing that your business will have the ability to make the monthly payments.

Your Approval is based Only on Your Credit Score

For many years it has been a common story that all loan application information is fed into a computer which uses a huge algorithm to assess the risk involved in loaning you money. And the key number that was used to determine if you do or don’t get a loan is your credit score and the credit score of your business. But that is not necessarily the case, similar to title loans with no inspection.

Most lenders will evaluate your company’s revenue history and cash flow statement and consider that information to be as influential, or even more influential, than the business credit score. In addition, there is great value in having a complete and detailed business plan to present when applying for a small business loan.

That provides information about your industry, your share of the market and the potential growth of your company in the coming years. All of that information is critical in determining if you will be able to afford to repay the money that you are asking the bank to loan you.

I Don’t Need the Money so I Won’t Apply for an SBA Loan

Even if your business is doing well and currently has strong cash flow, it might be wise to consider an SBA loan. If your industry has a definite cyclic season where business drops off steeply, then having a loan secured can assist you in making it through that slow season for the first year or two.

Also, if your company is very new and has little or no credit history, then repaying an SBA loan will be a great way to establish a good history and credit score. The money can also be used for unexpected growth or growth beyond what you had forecast. Knowing the truth about these small business loan requirement myths makes it much easier to determine if as SBA loan is the right choice for aiding in the growth of your small business. The process is much faster and more simplified than ever before and with strong documentation in your business plan and financial plan, you are very likely to be approved for the loan amount that you are requesting.

State Resources

Arizona title loans
Illinois title loans
Missouri title loans
Texas title loans

Call Now Button