7 Common Myths About Business Loans Every Indian Entrepreneur Should Know

Myth 1: Only Large Businesses Qualify for Loans

There is a widespread belief among entrepreneurs that business loans are only for large corporations. But that is not true. In India, MSMEs, start-ups, and individual entrepreneurs have access to business loans tailored to their needs. Democratization of financial assistance now allows small businesses to secure funding. In fact, Government Schemes like MUDRA and Stand-Up India further empower small enterprises and marginalized entrepreneurs.

Banks were the only source of business loans, rather a trusted and more formal source of business loans for a long time. But in the last few years NBFCs have come forward to offer secured and unsecured business loans to MSMEs. And these entities are regulated by RBI itself.

You can always get in touch with NBFCs like Ambit Finvest, to get a business loan. With a tech-backed ecosystem and a more innovative approach to check eligibility, these NBFCs help you reduce the time required to process application and only require minimal, more relevant documentation to qualify you for a loan.

Myth 2: A Perfect Credit Score is Mandatory

A good credit score, between 650-700 is an added advantage for getting approval on your business loan application. However, there are other factors too for securing a business loan, including the business cash flow, repayment history, and growth potential of the business. Businesses with not-so-perfect scores can still avail of business loans, especially under the MSME-friendly schemes.

Businesses can maintain a good credit score by checking their credit reports for discrepancies and errors, paying off existing debts, making timely loan payments, and having a robust business plan aiming for profitability and growth. This will help them improve their financial health and secure funding for growing their business.

Myth 3: Loan Processes are Lengthy and Complicated

One of the biggest misconceptions about business loans is that they involve extensive paperwork and extended approval time, making the process complicated. Banks and NBFCs are adopting fintech innovations and digital platforms for quick business loan disbursals. Thanks to digitization, you can now fill out applications from the comfort of your home on lenders website and app.

Government-backed schemes such as the Mudra loans operate similarly, offering funding with minimal documentation and no collateral. With time, the ecosystem is becoming more inclusive, convenient and understanding of the MSME problems leading to innovative, easy-to-use solutions for the intended audience.

Myth 4: Collateral is Mandatory

Small business owners think, no collateral means no business loans. It is true to a certain extent, but it is not set in stone. Business loans come in 2 categories: secured business loan, unsecured business loan. Collateral is mandatory for secured business loans. But with the right documentation, you will qualify for an unsecured business loan where the collateral is not a mandatory requirement.

While banks may often offer only secured business loans, fintech platforms, and NBFCs offer unsecured business loans as well. Ambit Finvest has a product tailor-made for your requirements, Udyam Loans, with minimal paperwork, maximum convenience and quick processing time.

Eligibility Criteria for Collateral-free Business Loans:

• Business must be operational for at least 3 years
• Should have a credit score of greater than 675
• Demonstrate steady cash flow and profitability
• Fulfill basic documentation
• KYC
• Bank statements
• IT returns

Myth 5: Business Loans are only for Working Capital

Business owners are unclear about the purpose of business loans in India, so they assume these loans meet only working capital needs. However, business loans are highly versatile and help businesses to grow, innovate, and thrive.

Funds from these loans help to purchase inventory and raw materials to promote smooth production cycles. These become usable for expanding premises by either renting new premises or constructing new facilities. These loans help to upgrade technology, purchase machinery, and invest in digital tools that enhance productivity.

Businesses can also avail specialized business loans:

• Term Loans: For long-term investments in equipment and infrastructure
• Equipment Financing: For purchasing machinery or technology
• Start-up Loans: To provide seed capital for new ventures
• Invoice Discounting: For businesses to manage cash flow by advancing funds against unpaid invoices

Myth 6: Only Banks offer Business Loans

While traditionally, banks have been a go-to for business loans, they are no longer the sole business loan providers. Today, NBFCs, fintech, and government programs have made funding accessible for businesses.

NBFC-sanctioned business loans have gained popularity because of the many advantages these offer over bank-sanctioned business loans. These lenders ensure faster approvals, minimal paperwork, and flexible eligibility criteria. NBFCs provide collateral-free business loans up to ₹50 lakhs, which you can apply for here.

Myth 7: Small Businesses cannot apply for Large Business Loans

There is a misconception that small businesses cannot avail of large business loans. However, in reality, the size of the business does not decide its funding potential. Banks and NBFCs consider repayment capacity, cash flow stability, and strength of the business plan when sanctioning business loans.

In India, large business loans for SMEs are becoming easily accessible. Lenders evaluate businesses' financial health, revenue generation model, and future growth potential while offering these loans. If the business has a clear plan about the utility of funds, it can secure substantial funding. NBFCs, fintechs, and government-backed schemes further simplify processes to avail large loans, ensuring opportunities to scale and achieve significant milestones.

Facts vs Myths about Business Loans

Conclusion

Business loans are available more freely and without the hassles that old time businesses faced. Banks and NBFCs are thinking of disbursing loans faster, making the processes convenient for the end user. They also, now, understand that entrepreneurs can thrive and contribute to the nation's progress if they get fast approvals with minimal paperwork.

With so many myths debunked, we encourage you to take your business to heights with the business loan that fits your requirements the best. Here are the short and crisp key takeaways:

Frequently Asked Questions

Are business loans only for large corporations?

Is a perfect credit score absolutely necessary to get a business loan?

Are business loan processes lengthy and complicated?

Is collateral always mandatory for business loans?

Are business loans only for working capital needs?

Are banks the only providers of business loans?

Can small businesses apply for large business loans?

What are some government schemes that support small businesses in getting loans?

What factors, besides credit score, can help a business secure a loan?

Where can I find collateral-free business loans?