Myths About Business Loan

Business loans are the lifeline for any business. When the business cannot wait for its internal cash flow all the time, business loans are the only option to run smoothly. Businesses turn to financial institutions for help whenever they need it. But some long-believed myths create mind blocks for pursuing business loans.

Here are some of the famous myths about business loans

Strong Credit History

The most common myth about a business loan is that you must have an impeccable credit score and credit history. This is not the case for all types of business loans. The lenders do insist on having a decent credit score of 650 and above to ensure risk-free lending. But businesses that are still trying to improve their credit score can get business loans. A good credit score is undoubtedly a gateway to easy credit at attractive terms. Otherwise, a bad credit score does not close the doors of opportunity. You can still qualify for a business loan but at the terms offered by the lenders.

Tough Approval Mechanism

Gone are the days when businesses were required to do a lot of paperwork and wait endlessly for getting a business loan. With the digital revolution, the information a financial institution seeks is very much available in the public domain. The lenders require basic documentation to be submitted to approve a business loan. The myth of getting a business loan means waiting at the bank for a long time does not hold good anymore. The online application, collation of information, and deployment of artificial intelligence have significantly reduced the approval time of business loans.

Business Loans Are Only For Larger Amounts

When the word business loan is uttered, the first picture that comes to our mind is a big amount. It is a myth and misconception. Business loans are now widely available to startups as well. You can get a business loan starting from as small as Rs 50,000. Small businesses thrive with the help of business loans. Big-ticket loans are not the cup of tea for budding businesses. Microfinance or small finance is the promising business finance sector that offers short-term finances to small and micro enterprises. Hence business loans cater to the needs of everyone in the business ecosystem.

Business Loans Are Only For Established Businesses

Like the credit history, it is also believed that only old and established businesses can get business loans easily. Now business loans are available even to self-employed professionals like doctors, chartered accountants, photographers, artists, etc. The lenders are now keen to understand your marketability and credibility. They do not pressurise the longevity of the business anymore. Startups and self-employed professionals are real-life examples of breaking this myth about business loans.

You Must Have Collaterals

It is also believed that you must have a higher amount of assets as underlying security to get a business loan. While this may be true for getting a secured term loan, this can't be commonly applied for all business loans. Many Non-Banking Financial Institutions offer unsecured business loans at attractive interest rates. Alternatively, you can also bring a guarantor or co-applicant for getting a business loan easily. 

Few Other Myths

• If you are availing of a business loan, your business is falling - Never it is vice versa.
• Mostly all the business loans are the same - No. Business loans are tailor-made to meet the specific demands of a business.
• Business loans are only for companies not for sole proprietors - No. Business loans are available even for kirana stores.
• Online business loans are not quite safe - Online approval will become the norm soon. Go for RBI-approved lenders always.
• Only public sector banks offer business loans - Private sector banks, micro-finance institutions, and non-banking financial corporations are approved by the Reserve Bank of India to provide business loans.

Conclusion

Business loans are the simplest way to grow your business without facing any cash crunch. It is important to come out of misconceptions about business loans and get them clarified by the experts. Compare and analyse all the business loans available in the market and choose the one that is affordable for your business. Once you get the desired amount of a business loan ensure timely repayment because it is never a myth or misconception it is the reality.

FAQ of Myths About Business Loan

1:What are the basic eligibility criteria for getting a business loan?

• You must be aged between 21 and 65 years.
• The business must be in existence at least for one year.
• The business must be profitable.
• Your business has solid business plans for the future.

2:What is the documentation required for a business loan?

3:What is the interest rate on business loans?

The interest rate can range from 8% to 36% depending on the type of business loan.

4:What are the various types of business loans?

Working capital loans, Cash credits, Overdrafts, Equipment financing, Term loans, Letter of credit, Invoice financing, and Bank guarantees are some of the types of business loans.

5:What are the various charges on business loans?

Processing charges, document verification charges, inspection charges, late payment fees, and overdue interest are some of the charges on business loans.