5 Myths about small business loans debunked

by Finway FSC Empowering People Financially

Running a small business is no easy task – especially if you’re looking at expanding. This is why entrepreneurs often tend to go for a small business loan in Delhi and other industrial hubs in the country in order to give a boost to their business. Now that fintech companies and NBFCs have propped up in the industry, taking a loan has become somewhat of an easier process. Still many business owners aren’t very aware of the pitfalls and advantages of taking loans and believe in many myths and misconceptions. Let’s take a look at some of the most common myths about small business loans so that you can have a better understanding of the process.

Small loans can only be taken from banks

There are a lot of small businesses that depend on traditional banks for availing loans, but it’s a relatively difficult process. Banks are very strict in terms of analysing credit history and they take a lot of time in disbursing the loans – not to mention you can only avail loan against property or other assets. It becomes a real problem in cases where you need a loan urgently. The better option in such cases is to go for NBFCs that can disburse the loan within two to three working days and the entire process is managed online for ease of access.

You should always borrow a bit more than you need

This might sound like some sort of safety mechanism to ensure you don’t fall short of money, but in reality, it’s just poor planning. Every extra penny that you borrow, you will need to pay back with added interest, regardless of whether you used it or not. Therefore, it is very important that you analyse your financial needs carefully before availing business loan in Delhi or anywhere else.

You need an excellent credit score to get a small business loan

This myth is partially true. If you’re applying for a loan from a bank, you’d need to have a good credit score. But even if you don’t have a good credit score, there are other ways. You can approach an NBFC for the loan. What the NBFCs do is that they evaluate your credit worthiness by analysing data like your unpaid invoices and monthly debit card as well as credit card sales. They include a number of other factors as well, like the duration of your existence in the industry, the nature of industry itself, your annual profits and turnover and whether the net cash flow of your company is positive or negative.

The best parameter for comparison between different loans is the interest rate

Given that interest rate can affect the amount of money you will be repaying, it isn’t everything. Some of the most important factors include the tenure of repayment and the terms on which the loan is being disbursed. These things are often overlooked in pursuit of the smallest interest rate ad people end up regretting later. Therefore, you must pay attention to the fine print and read the terms and conditions very carefully before availing a loan from an institution.

Applying for business loans online is not safe

Even though the NBFCs have existed for a while now, there is still a lot of stigma regarding applying the loans online. People, especially in India, for some reason, do not trust the online medium even though it has been demonstrated that it is much more secure and efficient than the offline method. Many NBFCs even have systems set up for disbursing loans without any human intervention at all. These companies are the future of the lending industry and it is a myth that needs to be disposed of as soon as possible.