What Types of Loans Are Available to Small Businesses?

Business loans provide funding that must be repaid over a certain time, including interest. Qualifications depend on the type of loan and lender; typically these require a detailed business plan, projections, legal documents, and proof of earnings as part of qualification requirements.

Lenders look at both a company’s character and credit history when providing loans; collateral may be required as security from owners as collateral against these types of loans which are intended to finance new investments or cover expenses.

Friends and Family

Friends and family can provide business funding on an informal basis; however, it’s essential that a loan agreement be formalized so all parties involved understand its terms and any conditions attached.

Avoid hard feelings by remaining transparent with lenders and sharing periodic reports on how your business is progressing. Deskera Books’ online accounting software can assist with automating this process and meeting IRS requirements; protecting both you and your lender against tax issues in the future.


Banks remain an excellent option for business financing, often requiring extensive paperwork and personal guarantees from company’s owners in exchange for lower borrowing rates than online lenders or other alternatives.

Banks take into consideration both the personal credit history of both the business owners and its management as well as cash flow issues to make decisions on lending decisions. They may require collateral or other forms of security should default occur and payment be missed on loans made to companies.

Some types of business loans available from banks include term loans, working capital loans, equipment loans, commercial real estate loans and invoice factoring loans (invoice financing loans). Banks generally require that applicants possess both excellent personal credit history and substantial revenue to qualify for these loans.

Online Lenders

Financing business expansion has never been more complex, yet more options than ever exist to finance expansion efforts. Many online lenders operate differently than banks when providing business funding solutions.

Dependent upon the lender, you may be able to apply online and receive funds within 24 hours or less. They typically offer simplified applications and relaxed eligibility requirements which make it easier for small businesses to qualify.

Before choosing an online lender, it is essential to investigate their reputation by reviewing third-party reviews and Better Business Bureau ratings. In addition, be mindful of loan terms, rates and fees before making your final choice.

Small Business Administration (SBA) Loans

The Small Business Administration offers several loan programs designed to aid small businesses, from getting started up and purchasing large equipment or machinery to financing startup costs and meeting certain eligibility criteria for each program. You may need to meet certain requirements such as providing proof that funding does not come from personal resources and having sufficient capacity for payments.

The SBA application process can be lengthy and requires extensive paperwork. This could include providing your credit report, personal financial statement, several years’ tax returns and any additional supporting documents required for approval. In addition, special programs exist specifically to support women, minorities, veterans and military servicemembers.

Business Lines of Credit

Business lines of credit offer businesses access to funds they can draw on as needed and generally have lower interest rates than loans, though some require collateral or personal guarantees and incur other fees that should be considered when comparing options.

Requirements vary by lender, but most require a high business credit score and proven revenue generation for your business. When applying for secured or unsecured lines of credit, consider their impact on eligibility as it will have an effect on qualifying. Furthermore, certain lenders require extensive financial statements and asset reports before approving you for such loans.

Merchant Cash Advance

Merchant Cash Advances (MCAs) allow businesses to borrow money from lenders in exchange for a percentage of future credit and debit card sales, with repayment terms depending on sales volume. They can help minimize financial stress if slow months arise during slow seasons, helping avoid financial strain.

Lenders calculate interest on merchant cash advance loans using factor rates, which is calculated as the decimal product of your advance amount and multiplied by factor rates. They often add origination fees and administrative costs as additional charges on your loan balance; MCA providers do not report payments made directly to business credit bureaus and may even require you to guarantee the loan using personal assets should there be an instance of default.

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