Small Business Loans

Small businesses of all types often need additional money to help achieve success. Luckily, small business loans are available to help companies with all aspects of business, from everyday expenses to expansion to commercial growth. Generally, a business should have excellent business credit scores and these are separate from an individual owner’s scores. Healthy businesses can rely on the fact that their customers will continue to spend money at their establishments.

Common Small Business Loans

Many types of business loans are available to small businesses. Here are some of the most common sources of additional funding:
  • Lines of Credit: Small business owners may seek lines of credit to create a pool of money they can access as needed. Lines of credit differ from traditional loans because they do not offer a business a lump sum of money up front. Businesses are offered an annual pool of cash to access as needed for business-related expenses. Repayment is made on a monthly basis and includes both interest and principle.

  • Term Loans: Term loans are the most common loans granted to small businesses. Term loans involve a lending institution granting a lump sum of money to a business, which is then repaid in monthly installments, including interest and principle, over a set period of time.

    When considering whether to grant a loan, lending institutions will require that a business owner provide detailed financial statements, an explicit business plan and credit information.

    With term loans, small business owners must carefully consider the amount of the loan and the monthly payments. Large payments with heavy interest can become a burden on the business.

  • SBA Guarantees: The Small Business Administration (SBA) assists small business owners in obtaining loans by providing a guarantee to lending firms. The SBA offers various types of small business loans to companies:
    • SBA 7(a) loans are offered through approved lending companies and are guaranteed by the SBA for 80 percent of the loan amount up to $750,000. This guarantee makes it easier to obtain the loan for businesses, as lenders see less risk.

    • SBA Fastrak loans are offered by large banks and financial institutions. These loans are available up to $100,000 and may be guaranteed by the SBA for up to 50 percent of the loan amount.

    • SBA Microloans are available to companies seeking a small influx of cash (up to $25,000) to purchase equipment such as computers and other materials.

  • Working Capital Loans: Working capital loans involve the assignment of business assets as collateral in exchange for operating capital. These are generally short-term loans used to assist periods of cash deficiency, which can affect daily operations. Assets used as collateral for working capital loans may not be included when calculating the worth of the business.

Risks of Small Business Loans

Small business loans carry risks that may not always be equal to the potential for gain. Working capital loans and lines of credit can place companies in uncomfortable or unrealistic repayment schedules that can interfere with normal operations.
 
Obtaining multiple loans can also have the same effect and can result in the loss of both business and personal assets. Small business owners should carefully consider the type of loan they wish to acquire and plan properly for repayment. They should also calculate the effect the loan will have on the business.