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10 Business Loans Myths Busted

Aman Verma 
on 20 February 2020

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It’s a widely accepted truth that myths are easily believed without putting much rationale behind them, as compared to facts. Same is the scenario with business loans, being a bit complicated lending product out of the rest; people tend to pick myths over facts to judge its positives and negatives. In today’s financial market there are a number of myths surrounding banking and financial products, specifically business loans. In this piece of article, we shall unveil 10 myths regarding business loans and shall try to make you understand bit more regarding the concepts of business loans. 

10 Business Loans Myths Busted

No business loan for Start-ups

It is assumed that business loans are often availed by existing enterprises and not offered to start-up enterprises; which is not true. The interest rates may be on higher side but start-up enterprises are the first preference of Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs). Even private banks do not hesitate in offering business loans provided start-ups are equipped with all the required documents, fulfil their eligibility and maintain good credit score. Few years back, Government of India initiated loan schemes like Mudra loan scheme, Start-up India and PMEGP that focuses in providing lending options to start-ups and MSMEs across the nation.

Borrowers submit Collateral to get business loans

Second myth is that collateral is a mandate to avail any type of business loan. However, if it is a secured loan, loan against property, equipment finance, bill discounting or letter of credit; only for these loans collateral is required to be submitted. For any type of unsecured business loan, collateral or security is not required by financial institutions like banks, NBFCs or MFIs.

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Bad credit score means no business loan

Low or bad credit score does not mean that you will not be able to get business loan or you are not eligible to avail. It just makes it a bit difficult to get business loan sanctioned from private and public sector banks. In this scenario, NBFCs comes for your rescue, wherein they offer loan without checking your credit report or credit score. However, it is always recommended to maintain a good credit score for any future financial requirements.  

Only banks provide Business loans

This myth is most widely spread that only banks are eligible to provide business loans to individuals, self-employed professionals, entrepreneurs, companies or enterprises. Financial markets have evolved and with the emergence of fin-tech companies there are a lot of business loan options available for the customers. Availing business loans has become easy and hassle-free with the ever increasing competition in the banking sector. NBFCs and MFIs are on high priority by applicants who get their business loan application rejected by private or public sector banks.  

Sinking businesses need business loans

This is not true; we can say that sinking businesses may also require business loans. Business loans are majorly used by entrepreneurs, firms, companies, enterprises for business expansion purposes, to meet their working capital requirements, for the purchase of land, equipment & machinery, to buy stocks, enhance inventory, and train or hire staff, etc. For sinking businesses, business loans provide a supporting hand to improve their cash flow and recover from debts or financial crunch situations.

Only large amount can be borrowed

You must have often heard that if you want to borrow lesser amount, personal loan or cash withdrawal from credit card is the only option; this myth is rejected by the notion that even business loans can fulfil your urgent cash requirements at competitive interest rates. You can avail business loans at as low as Rs. 10,000 and maximum can exceed up to Rs. 50 crore (depending on business requirements and lender’s sole discretion) with flexible repayment options.

Excessive time is consumed in loan approval process

Yes, we do not deny that business loan approval takes time but not excessive as this again is a myth. This belief is not for today’s strenuous financial environment. Nowadays, NBFCs and MFIs merely take couple of days in loan approval and even financial institutions like psbloansin59minutes.com provides loan approval within 59 minutes. It was believed that previously banks used to take months and months in business loan approvals, as they need to check and verify all the required and submitted documents manually. Now, with the emergence of e-commerce platform and online web portal, it has become easier for customers to apply for business loans online.

Small Businesses are not eligible for larger loans

Small businesses signify Micro-small and medium enterprises (MSMEs) or Small and medium enterprises (SMEs) or Start-ups; availing loans of larger amounts for these entities is not a difficult task. There are financial institutions like banks and NBFCs offering business loans up to Rs. 2 crore and working capital loans up to Rs. 5 crore as per business requirements and applicant’s profile and financial health. Even people who do not have credit score and collateral to submit can avail loans up to Rs. 50,000 to start their own business under (Pradhan Mantri Mudra Yojana) PMMY.   

High Interest rates charged on online portals

This is a very traditional myth among people that interest rates mentioned on the web portals are on the higher side, as compared to what applicants get quotes after visiting bank’s branches. There are several market aggregators in financial market that gets contracted interest rates from banks and NBFCs which are on discounted rates for the customers. Aggregators like online portals reduce customer’s effort by saving their time and money by making them avoid their bank visit.

All business loans are alike

Like businesses comes in varieties, features and dimensions the same way business loans are also introduced by financial institutions in numerous types. There is no similarity between the types of business loans considering their usage, importance, value, offered interest rate or loan amount, target customer base, fees & charges or even their significance. Types of business loans include term loan (secured & unsecured), working capital loan, bill discounting, letter of credit, merchant cash advance, invoice discounting, equipment finance, micro finance, fleet finance, commercial real estate finance and many more.

Conclusion

Hopefully, some of your myths regarding business loans must have been cleared by now. Taking a business loan is considered to be one of the most important financial decisions of your life, as the rest of all the financials rely on the success of your venture. So think, compare, choose and pick the best available loan deals that suits your business requirements. Leave the myths behind and rise with the facts to make your business grow and expand before even you would have expected.


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