Financing is essential for businesses big and small, and yet, remains a largely misunderstood subject for many. Not understanding how credit works could rob you of some opportunities and leave your business stagnant. Those who understand how to use and manage debt are able to build a solid reputation, support their business goals, turn these loans into profit, and increase their borrowing power in the process.
Sadly, too many are being held back by misconceptions they might have or they commit crucial errors without being aware of them. Here are some of the most dangerous myths and misconceptions people may have about unsecured business loans.
Your Assets are Safe
Some people may assume that their assets are only on the hook when they’re using them as collateral, but that couldn’t be further from the truth. Just because collateral has not been put up, it doesn’t mean that lenders can’t get to your assets if you end up defaulting on an unsecured loan.
They can still sue you and will be able to seize some of your assets such as a property you own or some equipment. They could even garnish some funds from your bank account, so that is something you’ll need to be prepared for.
You Can Only Get them if You Have Impeccable Credit
This is another lie that could have serious consequences. You shouldn’t limit yourself simply because you may have some blemishes on your record, or if you don’t feel like you have an established enough credit history to get an unsecured loan.
Know that there are plenty of lenders that will look at other factors when judging if you’re eligible. While your credit score might play some part, they might pay more attention to things like cash flow, for instance. Having a sound business plan and a good reason to apply for the loan can also help. They might not accept a loan if you want to give your office a nice makeover, but they might be more lenient if you’re thinking of investing in publicity, for instance.
All Debt is Bad Debt
This is another very common misconception and one that could end up stifling your business’s growth. Taking on debt and showing your ability to repay it is a sign of financial activity and responsibility, and one of the best ways to start building your business’s credit.
This is why you also shouldn’t assume that you can or should only borrow huge sums of money. While it is true that major banks tend to favor large loans, there are tons of other lenders who will be more than happy to accommodate you, and they’ll be much more pleasant to work with as well. Learn how to use debt wisely, and you’ll soon gain the upper hand when the time comes to ask for some financing.
These are all myths that could affect your ability to get credit now or in the future. So, make sure that you do your homework, and don’t be afraid to explore alternative options out there if you’re unsure about your credit situation.