Everything you thought you knew about business loans is WRONG – here’s why

We’ve taken six common myths about business loans and blown them right out of the water, you ready?

This feature is brought to you in partnership with e-lender, Everline

1. The bank is my only option

No it’s not. From peer-to-peer (P2P) lending sites and e-lenders to crowdfunding and invoice trading, there’s a wealth of alternative lenders boasting products especially tailored to micro, small and medium-sized business.

P2P sites like Zopa and Funding Circle broker debt-based transactions between individuals and businesses, while equity-based crowdfunding platforms such as Seedrs allow business owners (typically start-up and early-stage) to sell off small stakes of their business to a pool of investors.

Then there’s invoice trading – a practice as old as the hills – which simply means selling an unpaid invoice to an investor at a discount in order to access funds quicker, see businesses like Bibby Financial Services or MarketInvoice for more.

And last but not least there’s e-lenders like Everline and ezbob who are using technology to cut through the traditional – and lengthy – approach to underwriting. They’ve automated the whole application and decision-making process, which means funds can be with businesses within an hour.

 

2. If my bank refuses me, so will the others

It makes sense, right? Your bank knows your business, your turnover, your credit history – it knows your business is viable. So if they turn you down, so will the others.

Wrong! High street banks are generally geared towards big business loans, rather than lending to modern SMEs. They use the same or very similar set of old rules, ratios and processes set out by their very large credit and underwriting departments.

“Because of their lengthy, prescriptive and very manual approach to underwriting loans, and the requirement for many documents or ‘site’ visits, it’s just not profitable for most traditional lenders to underwrite small business loans under £150,000,” explains COO of e-lender Everline, Russell Gould.  

“Their process is pretty much the same regardless of loan size – so the reality is they’re geared towards big businesses and bigger loan sizes.”  So process and profit impact their ability to say yes.

Good viable SME businesses will often be able to get a more suitable and competitively priced loan from an alternative lender.  They often have a different approach to underwriting and cater better for modern SMEs.

 

3. The repayments will cripple my business

Not if you choose the right lender. The typical annual cost of a loan from Everline, for example, is between 16%-24%, which is less than most business credit cards. There’s no early repayment fee if you pay your loan back sooner then planned either, unlike with some other lenders.

Before you take out any loan, check all the small print and make sure you’re clear exactly how much you’re paying back each month – how much pound and pence will leave your bank account and on which day of the month.  Also, check the early repayment terms as often lenders will allow you to pay back early but still charge the full interest for the term you agreed upfront.  Avoid these loans if you can.

 

4. My bad credit history has ruined my chances

Don’t give up so easily! Having good credit history for you and your business is definitely helpful, but it’s not the be-all and end-all either – many alternative lenders will look beyond your credit rating.

Alternative lenders such as pension-led funders, for example, will consider your business’s intellectual property (IP) – which might be your databases, logos, web domain names, even your business reputation – and use that as security against which they provide a business loan from your own pension.

One advantage of internet based lenders, meanwhile, is that they use real time data to see how your business is performing right now, not just how it’s performed in the past, as well as thousands of other (quite literally) data points which paint a unique picture of your business.

It’s always good to check your businesses credit profile.  This is especially important when you have settled a CCJ as often the business bureaus won’t have the most up to date information and you might need to help them by providing proof of settlement so they can clear any such records.

 

5. My business is too small to get a loan

It’s a common misconception that sole traders and micro businesses can’t get business loans – a myth that “stifles business growth and has a massive impact on the economy as a whole,” says Gould. Yet alternative lenders are geared towards exactly these kinds of businesses – with products tailored to their needs.

One example of a less conventional and micro business is Radii Skatepark Repairs, founded by ex-semi-pro BMX rider Robert Steele in 2011, using bank finance. When a client couldn’t pay Steele for services he’d already completed, the business was left with a major cash flow problem. Steele tried to talk to his bank, who were “extremely unhelpful”, before turning to Everline for a loan. “They’ve literally kept me in business this year – and I’ll be forever grateful for that,” says Steele.

 

6. The application process takes forever

Yes, if you try a high street bank. No, if you try an alternative lender. Obtaining bank finance is a notoriously fiddly and longwinded procedure that can take around 70 days to process – who can wait that long?

Some alternative lenders still using traditional underwriting processes and some peer to peer processes may take a little longer still, so be careful who you choose if time is of the essence.  It’s not just about the decision but how long it takes to get the funds.

E-lenders meanwhile can and give you an answer within an hour of your application. Yes, an hour. Once your business is approved and you’ve signed the electronic loan agreement, you can have funds within five minutes. Yes, five minutes. Yes, five.

Find out more by visiting Everline today. 

This feature is brought to you in partnership with e-lender, Everline