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5 Small Business Funding Myths, Debunked

Before you jump in, make sure you know your funding facts. Here are five small business funding myths to watch for.


These days, small businesses are practically synonymous with the US economic growth and job creation. With the passage of the Small Business Jobs Act in September 2010, the US government is more eager than ever to encourage small business development through lending initiatives, tax cuts, and more. Suffice it to say, it’s a great time to be starting a small business.

But before you jump in, make sure you know your funding facts. Don’t be fooled by funding fallacies. Here are five small business funding myths to watch for:

Myth #1: You don’t need a business plan, especially if you’re not applying for funding.

Business plans aren’t just for overachievers. While your first business plan doesn’t have to be perfect, it does need to exist. Your idea may sound perfect in theory, but writing a business plan forces you to imagine how it would play out in practice.

What materials will your business require? What expenses will your business incur? What obstacles might get in the way of the success of your business?

These are all critical questions to the growth and development of your business – and by formulating a business plan, you’ll be obligated to account for them all. Your business will be better off for it.

Myth #2: If you’re selling online, you don’t need to charge or pay taxes.

The rules of the Internet can be pretty nebulous, so it’s hard to blame you if you’ve fallen for this one. But as vast and complicated as the Internet may seem, one thing is still certain—everyone has to pay taxes! Different states have different rules for taxation, which means that it pays to do your homework and find out which taxes apply to you.

Do you need to charge sales tax? What expenses can you write off? Do you get a tax break if you business is located in your home? Before you launch your business, make sure you know what’s up. Otherwise, your business’ next customer may be the IRS.

Myth #3: The US Small Business Administration (SBA) extends loans to small businesses.

Contrary to popular belief, the SBA is not a lending institution. The SBA is a federal agency that works to connect small businesses with affiliate lending companies in order to help business owners  secure loan financing. Due to credit and collateral limitations, small business owners have a notoriously difficult time obtaining loans.

To assist entrepreneurs in gaining access to the capital they need to launch their businesses, the SBA guarantees loans secured through their loan programs. But these loans are disbursed by a network of SBA-accredited institutions, not the SBA itself.

Myth #4: Only a bank can give you a small business loan.

The market for small business loans is tricky to navigate. Banks say they’re eager to lend to small businesses, but lack borrowers. Small business owners, on the other hand, often feel that bank requirements for credit and collateral prohibit them from securing loans. But banks aren’t the only source of funding for a startup idea.

Microloans, crowdfunding, and merchant cash advances are just three forms of alternative financing available to small businesses today. Banks certainly offer great lending opportunities, but if you’re truly determined to start your business, then it’s worth it to check out other options.

Myth #5: Business debt is bad.

Debt isn’t exactly good, either! But when properly managed, taking on debt can be critical to the success of your business. All businesses need capital to grow. If you don’t have a source of financing, chances are that you’ll need a loan. The key is to borrow responsibly.

Be honest with yourself about how readily you’ll be able to make debt payments and how valuable additional funding will be to your company. If you feel confident and have the numbers to back it up, then go ahead and take out a loan. Taking on a little debt now could mean big success in your future.

Liz Jacob is a writer and editor living in New York. She is a writer for Biz2Credit Business Loans , the #1 online credit resource for small business loans, business loans for women, equipment financing, working capital and other funding options. Biz2Credit has secured $800 million in funding for small business owners in the U.S. since 2007. Follow @biz2credit on Twitter and Facebook.com/businessloan for company and industry updates.

 

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