Starting a new business venture can be daunting so it is best to fully educate yourself with all necessary know-how before entering the market. Funding is the most crucial factor behind any business, hence it is imperative for budding entrepreneurs to do adequate homework on the topic of finance. The first step in the process is to clarify all misconceptions around B2B lending, and the purpose of this article is exactly that- to debunk five common myths about business loans.
1. Business loans are only provided by banks
To the common man, loans are often synonymous with banks. Hence it is important to make business owners, particularly the new ones, aware about the alternative lending opportunities in the market. Non-banking Financial Companies (NBFCs) provide a wide range of options in B2B lending, which are particularly beneficial for owners of startups or SMEs who do not possess the necessary credit score or collateral for a traditional business loan from a bank.
2. The process of obtaining a business loan is very time-consuming
Banks do not approve any business loan without a thorough analysis of the applicant’s paperwork and credit history. This is what makes the process of obtaining a bank loan so tedious and long-drawn. Fortunately for those seeking business loans, there is another way out. The rise of B2B payment services has simplified the method of application for business loans and also drastically shortened the process of obtaining it. The capital provided by non-bank lenders is thus more accessible to SMEs.
3. The higher the loan amount, the lower is the approval rate
Contrary to popular opinion, there is no real data that suggests a direct relationship between the amount of a loan and the probability of its approval. As long as your cash flow is regulated and you have good evidence to convince your lender that you will be able to repay the loan in time, you are good to go. The loan approval rates of B2B payment services is, for a fact, higher than banks as one of the former’s primary objectives is to provide funding to businesses in need.
4. You have to be a big business to apply for a big loan
From a logical perspective, no lender would want to loan a sum of money unless they are sure about its repayment. It is for this reason that many budding entrepreneurs fail to procure business loans as banks are unwilling to fund startups with a relatively large amount. B2B lending specially accommodates the financing needs of such small ventures. In fact, many NBFCs even allow for negotiations in the interest rate and credit period of business loans, subject to your organisation’s needs and potential.
5. All business loans are alike in nature
Just like any other category of loans, business loans also vary from case to case. For instance, a business loan to purchase inventory will differ in its terms and conditions from a loan obtained to fund a marketing campaign. Lenders usually assess the risk factors specific to the objective of the loan application before sanctioning it. NBFCs are a cut above banks in this regard as they specialise in B2B lending and can offer more expert advice on the kinds of loans best suited for specific business needs.
We hope that this article has been helpful in clearing the most common misconceptions about business loans. EMBIFI is an India-based B2B checkout, financing, lending and payments platform. For more information on their offerings and services, browse through the Embifi website.
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