True or False: What you really need to apply for a business loan
Calling all small business owners! We have looked into, researched, and debunked the most common misconceptions about business loans.
There are so many myths surrounding business loans these days. In this article, we will debunk many of the common myths that have acted as barriers for a business to apply for a business loan.
Firstly let’s look at what a business loan actually is. A business loan is a lump sum of money that is credited to a business (borrower) by a lender, that is paid back over a set period of time with interest accruing. A borrower may take advantage of a loan for a variety of reasons including:
- Covering short term losses
- Business expansion by acquiring extra office or warehouse space
- Purchasing of new equipment or machinery
- For a new start-up
- Increase in cash flow
We have unpicked the top 9 myths so you have all the information you need when you apply for a business loan.
Myth 1. You have to be in a certain type of industry
A traditional bank will not necessarily discourage a business from a certain industry when they apply for a business loan. However, they can favour higher-earning industries. The traditional banks can do this by requiring a certain cash flow history or income to be successful for a loan. This can be an issue for a small business such as a hairdresser, Café, or plumbing business when they apply for a business loan through a traditional bank.
This is the advantage of online lenders as they cater to the specific small business niche. They provide opportunities for businesses with lower net profits to expand and grow. Lumi’s options enable the small business owner to thrive. You don’t need to be in a certain industry for a business loan with Lumi. We will get into what you need to have to apply for a business loan when we debunk myth number 6.
Myth 2. Traditional banks are the only place to apply for a loan
Long gone are the days where traditional banks monopolised the loan industry. Today with the advancement of multiple fintechs, the options of applying for a business loan are great. Throughout history, banks have been the first and one-stop place when people are applying for a loan. When in fact, if applying for a small business loan the process and products offered by the banks are now obsolete. If your business is in need of a quick cash injection often the best place to go is a trusted online lender who has the automated systems in place to offer a user-friendly, fast-acting loan.
Myth 3. You can’t choose the amount you want to borrow
You can use an online calculator to determine exactly how much you want and can afford to borrow. With Lumi, for example, you can borrow up to $300,000 unsecured. So by knowing how much you need, you can borrow the right amount for your business. It is a good idea to know what you want to borrow prior to submitting your application, as it can save some time.
Myth 4. The business loan application process is too long
This all depends on the loan type, the amount, and which lender you choose. Applying for a business loan from a traditional bank will usually take longer. This is because traditional banks don’t have the automated processes in place to offer quick turnarounds to funds. They typically deal with larger loan amounts and longer set repayment periods. An online lender such as Lumi specialise in small business loans. We have a more efficient process in place to provide you with the funds quickly. We actually make it our mission to have an easy streamlined application process in place that is completely transparent.
Myth 5. A never-ending amount of paperwork is needed to apply
Most online lenders allow you to apply online easily and submit copies of your documents electronically. A business can apply for an unsecured same-day loan of up to $300,000 with Lumi in less than 10 minutes. And will likely know whether they have been successful shortly after or if they need to supply any other information. What you need to apply for a business loan with Lumi:
- A valid ABN/ ACN
- Identification documents
- Banking statements
- Credit Score (Lumi can look this up for you)
- You may also need to supply a business plan
Myth 6. Only businesses that are failing apply for loans
This is a completely false misconception. A thriving business can often be the perfect candidate to apply for a business loan. Let’s say, for example, a coffee shop has the opportunity to expand with a second location. However, they don’t quite have the cash saved up to do so. This successful coffee shop could apply for a business loan and expand their business with the help of the extra funds. If your cash flow is healthy and you have confidence in repaying the loan, then taking the opportunity to apply for a business loan upfront could possibly be the right choice. In fact thriving businesses will usually get better loan terms including more affordable interest rates as it’s less risky for the lender to lend them money.
Myth 7. You need a perfect credit score
Credit scores can play a part in the ease of your application process but all is not lost if you have some blemishes on your record. A credit score is essentially a record of your bill and loan repayment history. If you have a perfect repayment history you will likely have a better credit score. When you apply for a business loan through an online lender your credit score will be taken into account. If you have a bad or low credit score, online lenders have more flexibility by looking at other factors in your application and using those to determine your loan application success. Some of the other factors an online lender will look at when determining your eligibility can be time in business, future growth potential, and current cash flow.
Myth 8. You need some kind of collateral to secure the loan
No, you do not need collateral when applying for a loan of up to $300,000 with Lumi. Although a secured loan can have a lower interest rate, it can be beneficial not having to secure your loan to a property or a piece of equipment. As if you ever wanted to sell the property that is secured to a loan you will need to consult the lender first.
Myth 9. You can’t obtain a loan after the COVID-19 restrictions
This is not true, in fact, we have adapted our loan processes to help businesses get out of the COVID-19 slump by offering a specific loan. The Lumi Kickstarter loan is an excellent choice to get your feet back on the ground if your business has been significantly impacted by the COVID-19 restrictions. We look at the earnings you made prior and post lockdown to determine your eligibility.