The Worst Advice We’ve Ever Heard About Applying for Small Business Loans
At National Business Capital, each week we meet, speak or chat with hundreds of business owners who have challenges to overcome and opportunities to take advantage of.
When we talk with these incredible individuals, our job is to see how we can be part of their success story. To say that we’re a “solutions-oriented” company is something of an understatement as co-creating solutions is built into our DNA. It’s what we do, and why we exist!
Separating Good from Bad Advice Regarding Small Business Loans
However, it’s also true that over the years, we’ve come across some staggeringly bad advice regarding small business loans that has compelled us press the pause button on our positive thinking, and simply shake our head — because the (so-called) recommendations are so utterly wrong and misleading.
So, today we’re taking a pause from our regularly-scheduled blog programming that is usually focused on solutions, so that we can share what we believe is the worst advice that we’ve ever heard about applying for small business loans. Here we go:
The Worst Pieces of Small Business Loan Advice We’ve Ever Heard
- You can only get a small business loan from a bank or credit union.This one renders us (almost) speechless — especially since it is typically “advised” by bank and credit union loan officials.The truth is that the alternative lending marketplace is a multi-billion dollar industry, and it’s growing massively each year as more business owners — especially those at the helm of small and mid-sized firms — realize that there are superior funding options available outside of the bank and credit union space.
What’s more, borrowing funds in the alternative lending marketplace is often less risky for borrowers than dealing with a bank, since bank loans always require collateral. Many funding solutions in the alternative lending marketplace — such as working capital loans, merchant cash advances, and business lines of credit — are unsecured, and therefore no collateral is required.
- You should always take out a bigger business loan than you need just in case you require extra funds.Thinking ahead and planning for contingencies is wise. But after crunching the numbers, deliberately borrowing more funds than needed is shockingly bad strategy, because it typically lead to one of two bad outcomes: “dead money” sits in an account and gets eroded by inflation, or a borrower feels obligated to allocate funds even when they don’t deem it strategically necessary, in order to avoid alarming their lender.Unfortunately, many lenders — and again, banks rise to the top of this notorious list — try and push larger loans, because it means more profit. Indeed, it costs banks about the same amount of money, administration-wise, to underwrite a $50,000 loan as it does a $250,000 loan. So to them, the more money you borrow, the more interest they can get back.
- You save money by borrowing from banks and credit unions vs. firms in the alternative lending marketplace.This “seems” like good advice if the focus is entirely on interest rates. But just as smart shoppers need to read the fine print when they take a car ad into a dealership, smart business owners need to conduct their due diligence when it comes to small business loans.Once they do this, they are often shocked to discover that the total cost of borrowing with a conventional bank loan— including collateral valuation costs, the opportunity cost of putting together a massive application package, and the costs (if applicable) of being obligated to take out a larger loan than is needed — easily offsets any perceived cost savings.
Indeed, when truly comparing apples to apples and taking into consideration all variables, including application processing times and loan flexibility, many borrowers objectively determine that partnering with a firm in the alternative lending marketplace is the smarter move.
Get More Advice on Small Business Funding
If you have questions about any of the above, and want to learn more about your funding options, contact the National Business Capital team today.
We will provide you with honest, objective information so that you can make an informed decision that is right for YOUR business — not ours or anyone else’s. Give us a call at 877-482-3008 or submit our two-minute application to get your funding decision in 24 hours or less!