Gone are those days when small business owners had to beg and borrow money from their family members and friends to fund their businesses. Today business owners can have instant access to working capital that can help them run their business operations smoothly. Nevertheless there are many myths about small business financing that stops business owners from grabbing the right opportunities to fund their businesses. Here are three such myths that Yellowstone Capital LLC reviewed and has tried to shed light on:
Myth #1: Not having a good credit score will not get me finance
Banks and traditional finance providers tend to place a lot of focus on credit score when approving loans for businesses. Nevertheless, with the kind of challenges that they face, small business owners can find it very difficult to earn a great credit score that will help them get bank loans easily. Thankfully for you, bank is not your only option.
If you have been in business for more than a year now and have a cash flow that is healthy enough to pay back the loan that you take, you should find no problem in finding funds even if your credit score is less-than-perfect. It’s just that it may not be at the bank.
Myth #2: Non-bank lenders are for those who can’t get bank loans
Many borrowers waste a lot of time trying to apply for bank loans. Not only are banks very strict in approving loans, they also take a long time to process them. Small businesses that are in urgent need of cash might find it very difficult to wait for such long times. There are non-bank lenders who can provide funds in less than 24 hours’ time. The flexibility that these solutions offer not only helps business owners cater to their short-term financial needs, it also gives them better control over their finances.
Myth #3: SBA is the best place to get a loan
First of all, SBA or Small Business Administration is not an organization that makes loans. They only offer loan guarantees to banks and other traditional lenders so that they can finance businesses. However, you will still require a minimum credit score of 650 if you need to apply for an SBA-guaranteed loan. Also the underwriting process of an SBA loan can take some extra time, requiring you to wait for longer to get your funds. However, the best part of an SBA loan is that you can get it at a lower interest rate than many other non-bank loans. If yours is a creditworthy startup or a business that is looking for funds to purchase equipment or make capital improvements, this could be your best bet.
As a small business lending expert, here are a few things that Yellowstone Capital LLC would like to suggest:
- Find out why you want to borrow before you determine the type of loan you should go for. For instance, if you want to purchase inventory or pay back your suppliers you may benefit from a short-term loan that you can easily get from a non-bank lender. However, if you want to expand your place of business or buy equipment that depreciates over the years you will have to contact the bank for a long term loan.
- Before you make your decision make sure you evaluate the ROI of such capital and determine the interest that you can afford to pay.
