4 Common Myths Related to Business Loan

Entrepreneurial spirit in India has acquired new heights over the past few years. Currently, India has nearly 6.3 crore MSMEs, contributing around 30% of the country’s GDP and employing more than 11 crore Indians. However, beginning a business with a pragmatic idea is not sufficient. You are required to ensure constant growth in a dynamic and competitive environment. Here is where business loans can help raise capital when you have inadequate funds. The loan can provide you working capital to meet your expansion needs, buy fixed assets, improve your services, update your premises and other wide range of purposes. Despite the numerous benefits attached with these kind of loans, there are various myths associated with it, which cause confusion amongst many seekers.

If you are in the dark and look to differentiate fact from fiction, check out some popular myths busted here:

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Myth no. 1: Business loans come with a long processing time

In the past, the only medium to avail business loans was to assemble various records, head to local lenders, and anxiously wait for weeks or even months for the approval. However, technological development has brought in drastic change. Now, you can apply for a business loan through the online route by visiting the lender’s site and the processing is done within 2-7 days. Few lenders may even offer a lesser processing time of up to 24 hours.

Myth no. 2: Small loan proceeds will not be approved

Many wrongly assume that business loan is only apt if you have a requirement of a huge sum. While traditional PSU banks may prefer lending big ticket proceeds, there are many NBFCs and private sector banks that concentrate on small business owners in need of funds.

In the past decade, various micro loan providing firms and NBFCs have emerged that concentrate on providing only small ticket proceeds to businesses. However, note that to avail the proceeds, such lenders often factor various business loan eligibility criteria, which your business must meet. Such business loan eligibility criteria include, proper KYC documents, good credit score, relevant financial documents, business proof etc.

Myth no. 3: Providing collateral is important to avail business loan

One of the biggest myths about business loans is you must put in a valuable security to avail the required proceeds. While when it comes to secured business loans, you will have to offer your collateral to avail the loan; in case of unsecured business loans, you will not require pledging any asset. These unsecured business loans may be in the form of unsecured business line of credit, business credit cards, merchant cash advance etc.

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Myth no. 4: Low credit score means outright business loan rejection

While it is true that you should have a strong credit score of 750 and above for the approval of a business loan, it does not infer that a low score may result in instant rejection. Apart from your business and your credit score, lenders factor in other crucial parameters for loan approval like financial standing of the business, which includes cash flow, managerial team experience, business plan etc. While you may have limited choice, you still can check amongst different lenders through online financial markets and select the one as per your suitability and preference. However, remember that as a low credit score means higher credit risk for the lenders, they may compensate for this risk by charging higher interest rate on business loans.


Business loan is one of the appropriate credit options to fund your business needs. However, before you apply for this loan, remember to steer clear the above myths. Religiously believing in the above myths linked with business loans may restrict you from making optimal decision.