Business loans can offer wings to a new venture, especially in its early stages. Any business, big or small, requires funds to sustain and grow. Financing your business through a loan instead of selling its stake for capital funding may be a wiser option. Bank loans also offer a host of tax benefits and the flexibility in repayment makes it easier for businesses to sort their finances out. However, many entrepreneurs have several misconceptions about business loans. One such common notion is that business loans are only meant for bigger requirements, and it is difficult to get them for smaller amounts. In contrast, smaller amounts, in balance with the businesses’ earnings and cash flow, have a higher chance of approval. For bigger loan amounts, the lender may ask for additional information and set criteria that may make it difficult to get the loan approval.

Business loan approval also depends on the stage in which the business is. Businesses with proven track records have a higher chance of loan approval when compared to emerging ventures. However, a higher chance is not always a guarantee. New businesses, with better fundamentals, are likely to get approval for their loan, in sync with their business requirement.

The rise in lender options, in addition to the established banks, has also made it easier for budding businesses to get loans. Non-banking financing companies, NBFCs, may offer loans at a higher rate than banks. However, they may be willing to take the risk and chances of loan approval are comparatively in the case of a new business.

Another common myth about business loans is that you must have an existing business to avail of the financing options.

You may avail of a business loan for starting a business. Several lenders encourage entrepreneurs and offer business loans for new ventures as well. The lender, if they believe in the business prospects and the pitch, may approve business loans.

The business owner’s financing position also plays a key role in the prospects of loan approval. Having said that, it doesn’t imply the borrower must have a clean credit history. Well, having one always helps but it may not be guaranteed. The credit score requirement of the applicant varies depending on the kind of loan they are applying for. For short terms business loans many lenders may take the chance even if the borrower’s credit score is lower than what is considered ideal.

While bigger business loans may require the borrower to pledge collateral, they may not be applicable for all cases. Several small business loans can be availed without any collateral requirements. These include unsecured lines of credit, merchant cash advances and business credit cards, and unsecured business loans among others. In such cases, if the business owner defaults on the loan, they will be held accountable and need to repay the amount from their pockets.

The entire process of getting through with the loan application has become simpler with digitisation. This also allows you to compare the different options available in the market and zero in on the best deal.