Do you know the real truth about small business financing?


by Rieva Lesonsky for

When it comes to funding your small business, obtaining financing isn’t the only challenge entrepreneurs face. Apparently, learning about and understanding your financing options is a hurdle in itself, according to OnDeck’s latest Main Street Pulse Report.

In the most recent quarterly survey of small business owners:

  • 80 percent of business owners don’t think banks do a good job of explaining what it takes to qualify for different types of business financing.
  • 75 percent of business owners admit they don’t know all their financing options.
  • 66 percent of business owners don’t have a strong understanding of how business credit is calculated and how lenders use it to deny or approve financing applications.

Let me debunk some of the most common business financing misconceptions I hear from small business owners.

Myth: The SBA gives business loans.

Reality: The SBA does not make direct loans. They do, however, guarantee loans through a variety of financing sources including banks, credit unions and non-bank lenders. The SBA guarantees a portion of the loan to lessen the risk to lenders and make them more likely to lend to small companies.

Myth: If the banks turn me down, I’m out of luck.

Reality: Banks are only one financing source that’s open to small businesses. Other lending sources may include community-based microloans, alternative financing methods such as merchant cash advances or factoring, credit unions or crowdfunding. The best option for you depends on a variety of factors, including how much money you need, how long you’ve been in business, your business credit history and how fast you need the money.

Myth: If I don’t have good business credit, there’s no way I’ll get a loan.

Reality: Your business credit score is important, sure. But it’s easier than it used to be to find financing with a less-than-perfect credit score. In the wake of the Great Recession, when banks tightened the purse strings, a variety of alternative lenders sprang up to help small businesses find the capital they needed. You may pay more for your financing if your credit isn’t stellar—that’s just how it works. But you’re not necessarily out of the running.

The study also reports that 87 percent of business owners haven’t found a resource that explains how to qualify for financing. To help in that regard, OnDeck is partnering with SCORE to provide education about financing. They’ve also created a website,, to educate entrepreneurs about their options.

Of course, one of the best resources around for financing education and assistance is your SCORE mentor. Your mentor can assess your needs, explain your options, help you prepare your application and even connect you with financing sources in your community. Visit to learn more and get matched with a mentor today.

Rieva is CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship. She was formerly Editorial Director of Entrepreneur Magazine and has written several books about small business and entrepreneurship.

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