Applying and being approved for a business loan sounds like a chore. From paperwork to perfect credit scores and wait times, there’s a lot of misinformation surrounding small business loans that prevent SMEs from applying for them in the first place.
Here are some common myths we’re busting to make the application process clearer.
You need a perfect credit rating to get a business loan
Banks like to give loans to businesses that have a good history of credit. The better your credit history is, the more options you’ll have but even if your credit rating isn’t perfect, you can still apply for a business loan.
There are business loans available through second-tier and non-bank lenders that may be a good option for your business if you don’t have good credit.
Finding a trusted lender is key to getting a business loan when you don’t have perfect credit. The right lender will: ensure you can afford to take out a loan, help your business use funding to its advantage, and educate you so you understand how to pay your loan off in time.
If you have poor credit, your lender may be able to get you a loan with a higher interest rate to start off with. While it’s not ideal, over time you may be able to negotiate a better rate once you have a firm history of paying off your loan.
Look for a lender who is happy to walk their customers through the lending process and has a wide range of lenders at their disposal.
SMEs should only go to their bank for a small business loan
During the pandemic, many banks restricted their lending to SMEs leading business owners to turn to non-bank financial institutions for loans. While it makes sense to speak to your bank about a business loan, working with a financial brokerage has many advantages.
Many financial brokerages work with a wide range of lenders including traditional banks, non-financial institutions, and even online lenders. A financial brokerage can save you time by exploring all your options for finance and finding you the best loan for your needs.
Banks can be incredibly picky when it comes to lending. A financial brokerage will consider your short term and long-term goals and find a lender that is the right fit.
It takes a long time to get a business loan approved
There’s a common myth that applying for any type of finance takes a long time. Of course, it depends where you go to get your business loan. In general, traditional banks take the longest to approve small business lending as they require more paperwork and have historically tighter restrictions than other lenders. It can take a traditional bank anywhere from a couple of days to a couple of months to approve a small business loan
Working with a financial brokerage or non-bank lender is much faster. With the right paperwork, your loan can be approved in less than 24 hours.
Although every lender will require paperwork before your loan can be approved, online non-bank lenders tend to have the quickest application processes. At ThinkCap, it takes less than two minutes to apply for a business loan and you can even get the money in your bank account the same day you applied.
It’s not safe to get a business loan from a non-bank lender
While you should always do your due diligence when it comes to applying for a business loan, there’s no risk involved with choosing a non-bank lender over a traditional bank when it comes to your loan. Your bank may have a better reputation than non-bank lenders, but that’s usually because traditional banks have been around for longer. There are pros and cons to getting a loan from a bank or a non-bank lender.
Your bank might:
- Have a great reputation because they’ve been in business for decades
- Offer lower interest rates for your business loan
- Have a more complicated and difficult application process
- Only offer one or two lending options
- Offer rigid lending criteria that can’t be changed
- Take a long time to approve your business loan
A non-bank institution might:
- Not be as well-known as your bank
- Have higher interest rates for some types of finance
- Have a simple application process that can be completed online
- Have a tailored lending option that can be altered to suit your needs
- Offer a flexible approach to lending with a dedicated loan specialist
- Have your funding approved in less than 24 hours
Business loans are only approved for small amount of lending
Just because you run a small business does not mean you can’t apply for a larger loan. Many lenders will look into requests for larger loans and can apply to a wide range of banks and non-banks for approval. You will have to prove that your business can pay back the amount of money you borrowed and provide proof of your current turnover to convince a lender to give you a large business loan.
Only failing businesses apply for business loans
Running a business is expensive. It’s unrealistic to think that businesses can afford to pay for equipment, expansions or the unexpected every time. There are lots of reasons to apply for a business loan. From bridging the gap between outstanding payments to running new marketing campaigns, it often takes money to make money.
You need a business plan to get a business loan
While some lenders do want to see a business plan for a bank loan, other lenders don’t make this a requirement. We recommend working with a financial brokerage that has access to a wide range of lenders and a simplified application process.
At ThinkCap, to be eligible to apply for a loan you must have been in business for a minimum of six months and have an established ABN. No business plan is required. To get started on applying for a business loan fill out our application form. We ask for minimal paperwork, but transparency and honesty from our clients. This helps us secure you the best loan with a high chance of approval.
