Can you afford to go into small business? You can, if you do the estimate correctly. You can begin to consider the amount of fund needed with the objective of whether or not a portion of the fund need to be borrowed. When it comes to small business loans, things are not as glossy as it seems. Apart from general knowledge about loans, owners should learn the myths associated with this topic. So, let us look at some of these myths.
Myth 1: Borrowing from friends and family is a big no-no
If you have enough money in savings, you don’t need to raise elsewhere. If you don’t, borrowing from friends and family is not a bad idea. This is the least expensive way to raise funds because you may not have to pay interest. You don’t have to submit a business plan either. All you need is them falling for your pleas. One thing to note down is that, if you are borrowing from friends and family, do not forget to put it in writing and treat it like any other loan. This will protect you and them as well. The document should state the amount of loan and the amount of money you are supposed to return along with time-frame.
Myth 2: Credit card loans are expensive
Sure, raising money through credit cards should be done as your last resort because most credit cards have an exorbitant fee. But if you are a loyal customer of a company, they may be willing to negotiate your interest rate. Take a hard look at the reasons why they are lending you money before singing up for one. Some credit card companies will forego late-payment fees and penalty interest rates if you bargain. Most credit card companies will also require certain financial statements to convince them. In order to be prepared, you should make the assessment of the creditworthiness of your business and appeal to these companies. The business plan and statements you put forward should reflect your financial goals as well.
Myth 3: Loan cannot be obtained without proven track record
Finding the money source needed to start a small business is always the most difficult obstacle for potential business owners. And without a previous track record, most of these funding sources may not take risk without benefits. So, in order to increase your chances, you can consider running the business part-time until the business proves itself. This means, you don’t have to be an already established business to take loans. Some sources will lend you money if you prove them your worthiness later. In other cases, local governments and community agencies will lend money based on your credit history and business plan alone.
Myth 4: Bank loans are easier to find
Commercial lenders tend to shy away from small businesses that are new to the community. They believe the risks of failure with new small businesses are too high. This is the reason why they don’t want to take risk. Thus a lot of small business owners find themselves in a loop: The bank won’t lend them money unless they have a proven track record and owners can’t have a solid record until they get the money. In such cases, owners are urged to look to smaller lenders with good reputation in lending for small businesses. The cost here will vary from one lender to another. All you need to do is to call around for the best rates.
Myth 5: Certified business loans can be used for things other than fixed assets
Wrong. Certified business loans are programs provided for small business owners so that they can obtain loans to purchase only fixed assets like real estate, machinery, buildings and fixtures at a rate that is affordable. It’s mission is to promote business development and loan packages that are tailored to meet individual business needs. Certified loans are given after estimating the total project cost for opening the business. This cost include the purchase of land, equipment, construction or renovation, and furniture as well. The good news is, while commercial bank loans lend only a portion of this cost, certified business loans finance the entire purchase price or appraised value of the assets.