Are you anxious about taking a business loan because you are unsure if it is the ideal funding option for your company? Are you considering the pros and cons and clinging on to few beliefs about business loan without verifying the facts? Do not fret anymore, we bring to you some of the common myths about business loan and counter it with accurate information and facts.
Myth 1- Applying for a Business Loan is a Difficult Task
You may have a belief that business loan application process is time taking and complex, but it could be otherwise. If you have a good personal and business credit score, a sound plan for your company, and necessary documents, then you can get a business loan in as less as 3 to 4 days. Today, you can even apply for the loan online and get done with the application process within minutes. The customer representative of the website you had applied from will follow up on your loan application and provide you the best offer after matching your needs by comparing the top banks and NBFCs.
Myth 2- Personal Loan is better than Taking a Business Loan
Out of the expensive loans in the market, personal loan tops the list. You can get a business loan at a much lower interest rate and cost than most of the personal loans. Personal loan rates will depend on your credit score, income drawn, and age, and the rates can go as high as 28%. The only advantage of taking a personal loan is that you can utilize the funds for any purpose. This flexibility however comes with a higher cost, if you want to use the loan amount for only business purpose. Personal loan does not come with any tax benefits, while business loan does.
Myth 3- Use up Savings than Choosing a Business Loan
Personal savings is meant for the purpose of ‘savings’. Do not empty it out, unless you are hit by a financial urgency. Though you may think that it is best to use up savings than take a business loan, such decision could be unwise, especially if you have the capacity to repay the loan and keep the savings as it is. In the unfortunate event that your business fails to perform or take off, you cannot risk to lose out on your personal savings as well. Otherwise, you will have to borrow again, that too at a high rate of interest to fund your living expenses.
Myth 4- Big Banks Are Best to Take the Loan From
While big banks could be great to take a business loan from, do not eliminate other options. You will be surprised to know that several small banks and non-banking financial companies offer competitive deals, sometimes even better rates and terms. For instance, a small local NBFC could be offering you greater loan amount than a traditional bank or a lower rate and less stringent documentation requirement.
Newer fintech players and lenders may come to rescue with micro-lending as less as Rs. 50 thousand while big banks may not lend any amount less than Rs. 1 lakh. It could be harder to get a start-up loan from big banks than NBFCs and small lenders. It is always advisable to shop around to know which loan offer best suits your requirements in terms of tenure, loan amount, rate of interest, documents, repayment terms, and other conditions.
Myth 5- My Personal Credit Score Does Not Matter
If you think that business loan provider will not consider your personal credit score, you may want to think twice. Though the main focus of the financial institution would be to assess the financial health of your business, your personal credit score would be an important factor as well. A good personal credit score will indicate to the lender that your financial behaviour is sound. If you have a great individual credit background, then the chances of business loan approval increases and vice-versa.
Myth 6- I Should Opt for a Secured Loan than an Unsecured Business Loan
A secured loan is one wherein you have to pledge an asset (land, building, vehicle, equipment etc) to get a loan. The assets stand to be confiscated and liquidated in case you default at loan repayment. But an unsecured loan is a loan granted without taking any security or collateral, thus you do not risk losing any asset if you default at loan repayment.
Defaulting at loan is not a healthy practise. However, in case you do default at unsecured business loan repayments, you can choose from multiple options to repay the loan in time, like rescheduling the payment structure, choose which asset or savings to liquidate, or opt for debt consolidation etc.
Myth 7- Interest Rate is the Most Important Factor
Essentially, interest rate on business loan will inform you about how much the loan will cost. However, this is not the only information that marks your requirement. What if you get the loan at a lower interest from a bank, but this bank is offering you a lower loan amount that what you need? What if the rate is a little lower than other competitors, but the processing fee is high? What if the loan tenure is unsuitable but cost of the loan is low? What if there are high penalty charges and the rates are kept lower than standard? Thus, interest rate is not the sole factor to consider when choosing a business loan.
Myth 8- I Won’t Get the Loan since My Fund Requirement is Low
Since financing a business is perceived as a big expense, many believe that they can apply for the loan only if the requirement is for a big amount. However, this is a myth. You can apply for business loan as low as Rs. 1 lakh, which can go up to Rs. 1 crore. Many other traditional loans also offer you Rs. 1 lakh as minimum loan amount, thus making business loan as convenient as several other loans to fund small business expenses.
If you want funds for your business, then business loan is the most practical decision. Explore the world of business loans, and you will definitely find an offer that is perfect for your requirements.