5 Small Business Financing Myths That Are Costing You Growth

From SBA startup funds to leasing to carrying debt, here are some financial myths smart entrepreneurs avoid like the plague.

Entrepreneurs are natural optimists. There was a healthy dose of optimism when we started our businesses, and optimism drives innovation, decisions, and perseverance.

But when it comes to business financing, blind optimism can also lead to some costly missteps. Many small business owners and startup founders still believe outdated or flat-out incorrect things about how lending works, what banks want, and what financing options are actually available.

These misconceptions don’t just slow you down — they can actively hurt your growth. Let’s break down five of the most common small business financing myths and what the truth really looks like.

Myth #1: Banks and the SBA have tons of money for startups

It’s easy to assume that in a capital-driven economy like we have in the U.S., there’s a pile of money waiting for your great idea. After all, you’ve got passion, a business plan, and maybe even a few customers. Shouldn’t banks or the SBA be eager to invest and help you scale?

Errr, not so much.

The truth is that banks — and by extension SBA-backed lenders — are quite risk-averse and getting more risk-averse by the day. This is because they are not in the venture capital or “investing” business. They are in the lending business and want to be paid back, so they want to see collateral, steady cash flow, strong personal credit, and ideally, a few years of proven revenue. If you’re a startup with little more than a pitch deck, an LLC, and a few sales, you’re likely to get a polite “no.”

Even SBA loans, which are more favorable to small businesses, are designed for established businesses. They typically require a solid business plan, personal guarantees, and documentation/revenue that proves you can repay the loan. Many entrepreneurs are surprised to find that they’re not eligible until their business is well past the “startup” phase.

Startup lending tip: If you’re early-stage, consider alternative lenders, angel investors, friends and family, and even credit cards. Once you have consistent income and a few tax returns under your belt, then the traditional lenders will take a closer look.

Myth #2: Leasing is always more expensive than buying

Many business owners assume leasing is inferior to owning. But that’s not necessarily true — especially when you factor in cash flow, tax advantages, and operational flexibility.

For example, leasing equipment instead of buying it outright lets you preserve working capital. Instead of draining your bank account for a $30,000 piece of equipment, you might pay $800 a month and keep that cash in reserve for payroll, marketing, or inventory.

Leasing can also offer tax advantages. In many cases, leasing allows you to write off the lease payments as a business expense. Plus, in industries where technology evolves quickly — like foodservice, manufacturing, or construction — leasing gives you the ability to upgrade without the burden of resale or obsolescence.

Myth #3: Once I’m profitable, I’ll qualify for anything

Profitability is great. But lenders look at more than your bottom line.

Cash flow, debt-to-income ratios, credit history, accounts receivable, and even the seasonality of your business can all factor into a loan decision. You might be profitable on paper but still struggle to make payroll in February, and that kind of volatility makes lenders nervous.

In other cases, a business might be profitable but lack the “proof” lenders need to feel confident. Tax returns, bank statements, financial projections, personal guarantees — all of these matter. A profitable business with poor financial hygiene or limited record-keeping will likely be viewed as high-risk.

Myth #4: I don’t need funding — I’ll grow organically

Many founders take pride in bootstrapping. And in the early days, that’s often the smartest route. But eventually, organic growth can become a bottleneck.

Let’s say your product or service is gaining traction, but you can’t keep up with demand. Do you delay orders while you slowly build cash? Or do you use a loan to buy more equipment and/or hire help and increase production? Waiting could mean losing market share to more aggressive competitors who increase their own capacity.

Smart financing can help you scale faster, launch new products and services sooner, and beat competitors who are trying to grow with one hand tied behind their backs.

Myth #5: Debt is bad

This one is especially stubborn. Almost all successful businesses carry debt. That’s because debt — when used wisely — is a powerful tool that can be quite profitable. It can be used to acquire revenue-generating assets, invest in marketing campaigns, smooth out seasonal cash flow, or take advantage of time-sensitive opportunities.

The goal isn’t to avoid debt entirely. The goal is to use debt intentionally. Know the terms, understand the return on investment, and ensure you have a clear plan for repayment. That’s what separates healthy debt from financial recklessness.

Bottom Line

Business financing has evolved, but the myths persist. If you’re still operating under the assumptions above, you could be leaving money, growth, and opportunity on the table.

The most successful entrepreneurs aren’t just visionaries — they’re financially literate. They understand the real landscape of financing, and they know how to navigate it with clarity and strategy.

Connect with an Old National Business Banker for more insights to help your business grow.

This article was written by Dan Furman from Inc. and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.