Many small and medium-sized businesses may require additional funding at some point in their lifetimes. It can be for business expansion, asset purchase, updating premises, improving service, or building working capital. A Small Business Loan comes in handy at times like these, as an SME owner can obtain it quickly without pledging any asset as collateral.
Attractive interest rates, flexible repayment terms, and fast approval make unsecured Business Loans a popular funding option among business owners. However, obtaining unsecured Business Loans might seem complicated due to the several myths surrounding them. These misconceptions hold people back from exploring these convenient funding options. We clarify some common unsecured Business Loan myths for SME owners to avoid doubts over these structured funding solutions.
Myth 1: Only Sinking Businesses Borrow Loans
Many SMEs avoid borrowing because they believe it will harm their reputation as only sinking businesses borrow loans. This is NOT true. Although a Business Loan can come as a saviour for sinking businesses, many prospering entrepreneurs also borrow them to purchase land, buy stocks, hire staff, enhance inventory, expand the company, or meet their working capital needs.
An instant Business Loan provides resources to improve a business and help it scale up when the time comes to expand or leverage opportunities.
Myth 2: A Small Business Cannot Qualify for a Larger Loan
Many business owners assume they cannot qualify for a larger loan because they run a small-scale business. However, that is certainly not true. Loan providers look into bigger loan requests from companies of all sizes. The only thing required to acquire a larger loan is a sound financial position to repay the borrowed amount. Loan companies ask for relevant documents to see the business’s credibility, and when satisfied, they offer loans according to the different eligibility criteria and not just the company size.
Myth 3: A Borrower Must Have a Perfect Credit History
Many small entrepreneurs believe they must have a clean credit history to obtain an instant Business Loan. Well, it is a big myth around Business Loans. Although a sound credit history increases loan approval chances, a squeaky-clean record is not always mandatory.
The minimum credit score requirement varies based on the loan type and the provider’s policy. Since the credit score plays a crucial role in getting an SME Loan, improving it is always the best idea. So, even when your personal or business credit score is low, you can improve it gradually and get a loan when you reach a good score. Besides, loan providers also consider the applicant’s turnover and business performance to approve loans, not just the credit score.
Myth 4: Business Loans Put Assets at Risk
Many small business owners fear losing their assets while applying for a Business Loan. It is true for secured loans that require collateral to obtain a loan. If the borrower defaults on such loans, the lender my possess the property and sell it to recover funds.
However, that is not the case with unsecured Business Loans. Loan applicants do not require any collateral to obtain these loans.
Myth 5: Business Loan Procedures Involve Hefty Paperwork that Takes Several Days to Complete
The myth was confirmed when traditional loans required several branch visits and loads of paperwork for processing. Modern NBFCs like Clix Capital support online loan applications, saving the borrower a lot of time and effort. While applying for an unsecured Business Loan, applicants must complete very little documentation work. A few financial documents, proof of ownership, identity and address proofs are usually sufficient to process a Business Loan application.
Myth 6: A Formal Business Plan is Necessary to Get an SME Loan
This myth is also rooted in traditional loan procedures. Traditional loan providers used to ask for formal business plans to approve loan applications. This is no longer the case. Loans offered by NBFCs are now approved based on the business and applicant’s credit history, annual turnover, and other financial information. However, creating a business plan is helpful, as it helps a borrower know where to use the loan amount and how to gain the maximum benefit from it.
Myth 7: Interest Rate is the Most Important Factor to Check While Comparing Loan Offers
Interest rate is essential before borrowing. But, there are various other factors to consider while getting a loan, such as pre-payment charges, loan process fees and late payment penalties. These are additional costs that contribute to the total loan cost. Therefore, consider them before opting for one.
Apart from the interest rate and additional charges, an applicant must pay attention to several other factors while comparing loan offers, including eligibility criteria, documentation requirements, customer service, repayment terms, loan amounts and flexibility. All these factors are crucial when choosing the best loan plan apart from interest rates.
Myth 8: A Low Credit Score Means No Loan Approval
A CIBIL credit score of at least 700 is a minimum to avail Unsecured Business Loan from major NBFCs and banks. However, a lower credit score does not necessarily mean loan rejection. Low-score SME owners can still obtain an instant Business Loan, but they need to work harder and prove repayment capabilities to get the sanction.
Besides the credit history that makes up the credit score, NBFCs also consider the current turnover, finances, and business performance to evaluate loan applications. So, applying for a loan despite a low credit score is not a bad idea when your business is on the right track.
Conclusion
We have cleared some popular myths regarding unsecured Business Loans. You can make an informed decision now and bring the business finances back on track. Think, compare, and pick the loan deal that best suits your needs without falling for these myths.
Refrain from letting these misconceptions restrict the possibility of getting a Business Loan for business growth. Leave behind the myths and rise above them with the facts to help your business grow and stand out from the crowd.