There are many hurdles new small businesses may need to endure when starting a business and opening a business bank account may prove to be the most confusing for some. Small businesses don’t have much money and hear horror stories about opening or having a business bank account which pushes them to use cash only, which tends to make record-keeping more difficult. In this article, we will tackle 5 myths that persist with bankers and what the truth really is.
The FDIC’s 2018 Small Business Lending Survey found that smaller banks (up to $10 billion in assets) tend to be flexible in structuring loans for small businesses, and 3 out 4 of these banks report that they lend to small businesses that have been in operation for up to two years.
For every large bank that lends larger loans, there are smaller non-profits and micro-lenders, who want your business. It is best to discuss your needs with your banker without making assumptions; every situation is unique. If one institution cannot accommodate you, many others may have an interest.
While personal and business credit histories play an important role in getting a loan, they don't have to be perfect. Banks will want borrowers to have “Good” credit about 650 or above when applying for a loan. Different banks will have different credit score thresholds and is it a good idea to check with your lender to know where your credit score should be.
In many loans we help clients with, the business loans typically close in 45 days, provided all the required documents submitted in the loan package are complete. Don’t make assumptions; ask about the time for credit approval and funding when working with a lender.
Many factors determine the cost of bank products, and these factors change from time to time. Establishing a personal relationship with your banker may make it easier to waive fees if they know you and your business when the time comes. To determine the best solutions for your business, always analyze and compare your options when shopping for bank products and services.
Myth 1. Banks Don't Want My Business Because it's Too Small
You don’t need a lot of money to establish a banking relationship. Bankers want your business because they hope you use other services, like loans and lines of credit with the expectation your company will grow. You can open your business deposit accounts as soon as you have an Employer Identification Number (EIN).
The FDIC’s 2018 Small Business Lending Survey found that smaller banks (up to $10 billion in assets) tend to be flexible in structuring loans for small businesses, and 3 out 4 of these banks report that they lend to small businesses that have been in operation for up to two years.
Myth 2. Banks are not able to consider my loan application if my loan is too small.
First, at most institutions, you don’t need to have an account with the bank to obtain a loan. Some banks may have thresholds for the amount of time a company is in business or a loan amount they typically loan to small businesses.For every large bank that lends larger loans, there are smaller non-profits and micro-lenders, who want your business. It is best to discuss your needs with your banker without making assumptions; every situation is unique. If one institution cannot accommodate you, many others may have an interest.
Myth 3. Banks require a perfect credit history
Banks generally require a good business plan, history, and projections of cash flow, to show proof of sufficient revenue to ensure that you are able to pay back the loan. Having collateral can also help the lender’s assessment of your loan application.While personal and business credit histories play an important role in getting a loan, they don't have to be perfect. Banks will want borrowers to have “Good” credit about 650 or above when applying for a loan. Different banks will have different credit score thresholds and is it a good idea to check with your lender to know where your credit score should be.
Myth 4. The loan application process takes months
The time it takes to process a loan application depends partly on whether the applicant has submitted all the required documentation. Even government loan applications, such as those for the U.S. Small Business Administration (SBA) guaranteed loans, are processed relatively quickly.
In many loans we help clients with, the business loans typically close in 45 days, provided all the required documents submitted in the loan package are complete. Don’t make assumptions; ask about the time for credit approval and funding when working with a lender.
Myth 5. Fees are not affordable For Small Businesses
Fees for bank services can sometimes be waived or lowered, especially if you already use products and services from the bank when you are seeking a loan. Borrowers should not be afraid to ask for better terms, such as lower fees, collateral, interest rate, or changes to payment schedules.Many factors determine the cost of bank products, and these factors change from time to time. Establishing a personal relationship with your banker may make it easier to waive fees if they know you and your business when the time comes. To determine the best solutions for your business, always analyze and compare your options when shopping for bank products and services.
Conclusion
There are many myths or misconceptions that you have heard that we didn’t cover. As with many of these incidents of misinformation, it’s better to get the most accurate information straight from the source: the bank. You also need to remember that there are plenty of banks to do business with so don’t settle for the first institution you come across or take it for granted that terms or fees apply to every bank.Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.
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