Securing finance for a Small and Medium-sized Enterprise (SME) can be a daunting task. Are there any available supports? Are we eligible? Is it worth the effort? Should we simply rely on sales to scale? These are the questions that run through a business owner’s mind as they try to determine the best way to fund their growth.
Unfortunately, there are numerous myths and misconceptions that can deter business owners from seeking the financial support they need. It’s a real shame because sometimes it’s a lack of capacity, not a lack of ambition, that holds companies back.
In this post, we’ll debunk five common myths about accessing finance for your SME business:
Myth 1: You Need Perfect Credit to Secure a Loan or Grant
One of the most pervasive myths is that only businesses with spotless credit histories can secure financing. While a good credit score can improve your chances of getting a loan, it’s not the sole factor lenders consider. Many lenders and grant providers, especially those focused on SMEs, understand that newer businesses may not have perfect credit. They evaluate the overall health of your business, including cash flow, business plan, and growth potential.
Myth 2: A Traditional Bank Loan is the only option
Contrary to popular belief, banks are not the sole source of financing. The lending landscape has evolved significantly. Today, there are numerous alternative financing options available, such as peer-to-peer lending, crowdfunding, venture capital, angel investors, and government grants.
Online lenders and fintech companies also offer a variety of loan products tailored to SMEs. Exploring these alternatives can increase your chances of finding a financing solution that fits your needs. Consider what additional finance you might need and think through the best approach to raising funds.
Myth 3: The Application Process is Too Complicated
Another common misconception is that the loan and grant application processes are overly complex and time-consuming. While it’s true that traditional bank loans and some grants can involve extensive paperwork and stringent requirements, many have streamlined the process. There is also support from grant advisors to hold your hand at each step of the process.
Many online lenders offer quick and straightforward application processes, often requiring minimal documentation. These platforms use technology to assess applications faster, allowing you to receive funds more quickly. Don’t let fear of paperwork deter you from seeking the financial help you need.
Myth 4: You Must Have Collateral to Get a Loan
The belief that you must have significant assets to secure a loan is another myth that can discourage SME owners. While some traditional loans require collateral, many lenders now offer unsecured loans. These loans do not require physical assets but may come with higher interest rates to offset the increased risk.
Additionally, alternative financing options like invoice financing, where loans are secured against unpaid invoices, and business lines of credit, can provide the necessary funds without traditional collateral. It is quite possible that you might have assets, Intellectual Property, or equipment that are more valuable than you realize and could secure the support you need.
Myth 5: Small Loans & Grants Aren’t Worth the Effort
Some business owners think that small loans and grants aren’t worth the hassle due to perceived high costs and limited impact. However, small loans can be incredibly beneficial, especially for SMEs looking to cover short-term expenses, manage cash flow, or take advantage of growth opportunities. Microloans, typically smaller than traditional loans, can provide the financial boost needed to scale operations, invest in marketing, or purchase inventory.
The specific criteria and focus of grant funding often create new opportunities for underdeveloped areas or new project ideas. The effort put into securing even a small loan or grant can yield significant returns for your business.
Conclusion
Accessing finance for your SME business doesn’t have to be an insurmountable challenge. By debunking these common myths and simply being curious about how you might fund growth, you can approach the financing process with a clearer understanding and greater confidence.
One myth that didn’t quite make the list revolves around the perception that businesses only take loans when they “need them.” In fact, the opposite can sometimes be more representative of what investors, banks, and grant providers are looking for. If your business is already functioning well, now is a great time to strategize for even better results.
So explore all your options, prepare a solid business plan, and seek advice from experts to find the best financing solution for your SME. With the right approach, you can secure the funds needed to propel your business to new heights.
If you want to find out specifically about events in Broxbourne & Hertfordshire, consider attending the Access to Finance Workshop on October 18th or speaking to Julie Creffield, your Innovation Director at BEC. She can provide valuable support and guide you toward relevant finance opportunities.
