Two types of corporations offer business loans: Banks and non-banking financial corporations (NBFCs). Borrowers are not required to provide any collateral to obtain a Business Loan from a lender.
Individuals who are self-employed or do not hold a professional position may be eligible for a Business Loan from a non-banking financing organization or a bank.
For those who have applied for a business expansion loan earlier, the procedure appears time-consuming and complex due to several prevalent misconceptions. Processes for company loans can vary widely, as can those for other types of financing.
Some frequent misconceptions to avoid about getting a Business Loan:
1. You Must Have an Impeccable Credit Record
While securing a loan, a common misunderstanding that small businesses face is that they must have perfect credit. Small companies with a less than stellar credit history can still get loan approval.
Many small-business owners believe they must have a clean credit history to get a loan from a bank. One of the most popular misconceptions about Business Loans is that they're expensive. The likelihood of securing a Business Loan increases with a solid credit history. Still, you don't have to have a perfect credit history to gain the attention of lenders like banks or NBFCs.
With a higher credit score, getting a loan is easy, and more options are available. Even if your company's credit rating isn't stellar, you shouldn't rule out getting a loan based on that.
For example, firms working to improve their credit score may qualify for a particular type of loan. If you're desperate for money, it's worth looking into these types of loans, even if you'll pay a higher interest rate.
2. Loan Application Is a Time-Consuming Process
Back in the day, getting a company loan meant gathering multiple documents, visiting your local lender, and patiently waiting weeks or months for approval. Things have significantly changed lately.
Enough information about your business is required when applying for loans, but the process isn't quite as time-consuming and complicated as you may expect. Thanks to recent technological advancements, applications can now be completed quickly and easily online. Sometimes, you may be able to have the funds in your bank account the very next day.
Numerous websites allow you to check pre-approved loans, including a list of potential lenders and their interest rates. A small business owner may simultaneously apply for a Business Loan online with multiple lenders and have the money placed into their business account within a few days.
3. Only Huge Commercial Loans Are Approved
Almost all new businesses require financial assistance to get off the ground. Furthermore, the claim that new enterprises are ineligible for bank loans is untrue. There are numerous lenders specializing in providing startup loans to enterprises with no or limited credit history.
Although the lender will consider your credit rating during the application process, you should be aware of this. If you're looking for a Business Loan, don't be hesitant to shop around and compare offers from several lenders.
Lenders like to give out larger loans because they know they will get more money back in the long run, despite what many people think. Before you begin the application process, you should know how much you are required to borrow and each month how much you can afford to pay back.
A common misconception among small-company owners is that Business Loans are only suitable for those who seek a substantial sum of money. Many non-banking financing organizations and micro-loans providers focus on small business owners needing Business Loans. In contrast, traditional banks prefer large-ticket Business Loans that are more profitable.
As NBFCs and micro-loans have developed in India over the past decade, small-ticket Business Loans are available to entrepreneurs who need more money than they have available. There is no purpose in applying for a large-ticket Business Loan if a small business owner does not require it.
4. You Must Provide Collateral to Obtain a Business Loan
Putting up collateral when applying for a Business Loan is intimidating for many small business owners. It makes it harder for the business owner to secure a loan.
However, there are exceptions to the rule, and collateral requirements are not a pre-condition for receiving this loan. In many cases, unsecured small-Business Loans are available. Company Small-business owners can access various financing options, including credit cards, merchant cash advances, and unsecured enterprise loans.
A small business owner does not need collateral for these options to secure a business expansion loan. The applicant may be required to provide a personal guarantee in place of that. The borrower is responsible for repaying the loan amount and any interest accrues.
Business owners that default on their loans or miss payments is responsible for the entire sum. Depending on the financial and business situation of the business owner, this could be a good deal for the applicant.
Conclusion: Final Thoughts!
No Business Loan application will ever be a walk in the park. But it's not like putting together a rocket ship. Loans depend on individual circumstances. Several factors, including business requirements, finances, credit history, plans for the funding, etc., influence loan approval and the amount of loan sanctioned.
A small business incurs many expenses, from stocking inventory, and repairing machinery, to managing payroll for daily working capital needs. As small business owners, they have limited cash flow and capital.
Most small and medium-sized businesses need to raise funds from time to time to take the company to the next level. These businesses have always been the backbone of the economy.