4 of the Most Common Misconceptions About Getting a Small Business Loan
A small business owner shouldn’t rely wholly on what he or she thinks is common knowledge in deciding whether to apply for an SBA loan. In fact, there are a lot of widespread myths about this type of lending. Here are four common myths that small business owners should be aware of.
1. SBA Loans are for Struggling Businesses
Some people think that small businesses need to be able to demonstrate financial hardship in order to qualify for a small business loan. While this type of lending typically isn’t available to large thriving corporations, a business still needs to have solid financial footing to apply successfully. The size of a business and its revenue could be an important qualifying factor, but hardship is not. SBA loans are meant to support small businesses, but they’re not charity. If a business is experiencing too much financial difficulty or doesn’t have a history of stable operations, its loan application is unlikely to be successful.
2. Credit Doesn’t Matter
Contrary to popular belief, even new small businesses need to have formidable credit in order to get approved for SBA loans. If a business is still in its developmental stages, the principals’ personal credit may be relevant to its application. A business that has problematic credit needs to take steps towards rebuilding it in order to be a more appealing loan applicant.
3. You Have to Get a Loan From the SBA
Business owners may mistakenly believe that the only place to get SBA loans is directly through the SBA. In reality, just about every type of financial institution administers these types of loans. Small community banks and large national banks can review and approve loans through the SBA program. There’s also a growing online market for SBA lenders. The funding comes directly from the lender rather than the SBA, but the lender has to comply with all of the regulation’s program.
4. Defaulting on an SBA Loan Will Not Hurt a Business
SBA loans aren’t a grant or stipend. Lenders expect repayment in full. Failure to repay a loan could result in a forfeiture of collateral or a lien or a default judgment. It could also negatively impact a business’ credit for a period of years.
SBA lending may differ from what a lot of prospective borrowers imagine. As a result, a lot of them may be missing out on an excellent opportunity to grow their business.
