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7 Small Business Loan Myths Busted

  • Highlights

  • NBFCs have become a bankable source of funding for SMEs

  • Percentage of funds provided by banks is fewer than before

  • It is possible to get a high loan amount sanctioned for your business

  • It is possible to get funds quickly and easily

Embarking on a business venture is not easy. Though a hard-hitting business idea is one of the prime requirements, what matters most is sticking to it, in the face of all odds. "Amid intense competition for limited financial resources, particularly small business loans, certain ventures fail to survive," says Anil Banerjee, chief loan officer of a reputed NBFC.

As these businesses toil hard to figure out the best financing options for themselves, certain myths in the small business loan market can act as a dampener. This article attempts to raise curtains on the existing myths that can derail a successful venture.

Myth 1: Denial of Loan if Rejected by Banks

Though banks are one of the most important sources of lending for small businesses, of late, NBFCs have become a bankable source of funding for SMEs. "Cornering of bank credit by large corporate houses has propelled the demand for funding from NBFCs. Post the 2008 financial crisis, banks have tightened up their lending standards, making it very difficult for small businesses to survive their screening," quips Anil.

RBI estimates show that of the total Rs. 26 lakh crore requirements of funds for the SMEs, banks have provided only 40%. This approach has given rise to an alternate class of lenders who give small businesses more financing options than ever before.

Myth 2: Need to Put Assets On the Line

Small businesses not only differ from their bigger counterparts in terms of assets. Most often, they run from a single location and have little to offer as collateral. In such a scenario, crucial business operations may suffer due to lack of funds. Such a bottleneck is injurious to the health of small businesses as well the Indian economy.

Myth 3: A Perfect Credit Score is Necessary

Banks give a lot of weight to a business’s credit score while lending. However, they are no longer the only source of funding options available today. Alternate lenders also consider other parameters such as:

1. Financial situation of a business, including cash flow
2. Experience of the managerial team
3. Business plan

However, it is true that a good credit score enhances small business loan eligibility criteria and helps the business get the best possible rates.

Business Credit Report

Myth 4: It’s Risky to Approach Online Lenders

Proper research on the part of the borrower can mitigate the risk of online fraud. "Digital prudence can fetch a much better deal than available elsewhere else. The online world is an ocean where businesses can find and compare various loan options," says Anil.

Additional Read: Reasons why your business loan application was rejected

How To Get Small Business Finance From Bajaj Finserv

The 4 types of business loan explained

From time to time, every business needs an external source of finance to fund its needs. While business loans are a convenient and hassle-free source of funds, it is important for small business owners to know which is the right type of business loan for their enterprise. Here, we showcase the 4 types of business loans, and what each of them is suited for, to help you make the best decision for your business.

Types of Business Loan - Infographic

Myth 5: It Takes a Long Time to Get a Business Loan

Thanks to digitization of the lending process, the days of long wait for funds are over. "Borrowers approaching PSU banks have to deal with antiquated technology that delays the loan process. Alternate lenders have taken the entire process online. This has cut down cumbersome paperwork, resulting in faster disbursal of loans," points out Anil.

Myth 6: Disapproval of High Amount of Loan

Note that doubts kill more dreams than failure. "Funds should never be the roadblocks in a business venture. With so many options available, the question shouldn't be how much, but how quick," opines Anil.

Proper documentation coupled with the attractiveness of a business plan is good enough to secure a high amount of loan.

Myth 7: Interest Rate is the Most Important Factor

Yes, the interest rate is one of the most important factors to consider while opting for small business loans. "It is also one of the easiest ways to get duped," cautions Anil. He elaborates, "Through low-interest rates, borrowers run the risk of debt traps. Hence, it is vital to conduct thorough background research and take professional help to understand the technicalities of borrowings."

If small businesses are willing to think out the box and ignore the myths, they will find that there are more borrowing options for them than ever before.

Additional Read: Business areas that will boom

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