How to Get a Small Business Loan and the Many Options of Loans

When you learn further about how to get a small business loan, it’s imperative that you also learn about the different types of loans available for small businesses, and why would you need such a financial help. Business loans have its own mechanism and system, which can be different from other types of loans, such as mortgages or student loans, for instance. Let’s not forget that the process may involve several factors and elements, and if you aren’t prepared, you would be surprised by the extra fees, the complication, and such things alike.



About Small Business Loans

Thanks to technology and its development, small businesses today don’t always rely on financial institutions like banks to get some financial help. There are various types of lenders out there that have their own systems, work, and requirements, including charging up different repayment types. That’s why you need to understand the details of how to get a small business loan before you can send out an application.

If you are an owner of a small business, you’d know that there are tons of reasons why you need the loan. It can be for supply. You may need new equipment. You may also need the financial support to expand the business. It’s a good thing that there are various different kinds of loan providers or lenders out there. Although you may need to familiarize yourself with each lender’s requirements and mechanism, understanding how each of them works can deliver a promising outcome for you.

How to Get a Small Business Loan


SBA 7(a) Small Business Loan

Small Business Administration would be responsible for guaranteeing the loan. The lenders are legible, and they are willing to lend money to (small) businesses that are able to meet their requirements; and often times, these requirements can be pretty strict. If you have a startup or a small business, and you have a rather less established (business) credit in need of capital so you can grow, this one would be the perfect options.

In general, here are some of the requirements set for the loan:

  • You can show the need or the proof for a loan
  • Your business should operate for profit. The nonprofit businesses would be considered not eligible for this type of loan.
  • Your business should meet the definition of a small business, according to SBA’s books and definition
  • Your business shouldn’t be in default for the previous loans (owed to US government)
  • You have used the alternative financial sources and resources (like personal asset) before you look for help through SBA
  • Your business has an enough amount for invested equity
  • You are doing business within its territories or the US


Working Capital Loan

Also known as the business line of credit, this one can be useful for you in certain circumstances. If you want to learn about how to get a small business loan, you should also know about the Working Capital loan. This is basically a revolving credit line that is extended through the bank, typically. The funds would be offered and made available to the business, for the sake of business purposes only. The business (or the borrower) is only responsible for paying the interest for the money they have used – not the entire borrowed funds.

There are several perks of having this kind of loan:

  • You can avoid collateral. Most of the business owners are worried about getting a loan from the bank because they need to have a collateral – and the collateral is usually the personal asset that they don’t want to put in risk. But if you take this loan, you won’t have to ‘gamble’ your personal assets at all.
  • Manage a crisis related to the cash flow. Whereas capital is the core of a business, so is the cash flow. If you don’t have enough capital or cash flow, your business will suffer and you can be out of business in a second.
  • You can borrow quickly – as well as repaying it. The great thing about this loan is that business owners can get direct and fast access to the funds, and they can do it whenever they need it. They can also repay it once the cash flow is getting better.
  • You have the freedom to spend the money as you see fit. You are free to use the funds to whatever crucial to support the business. It is fun because you have a sense of full control over how you spend the money.
  • You can keep the full ownership of the business. This type of loan doesn’t need the owner to sell the company’s share in return for capital. The owner can still maintain full control and ownership of their company.


Business Term Loans

This is the typical traditional business loan that you can get from financial institutions like the bank. The reason why you also need to learn about this when digging the details on how to get a small business loan is because of its mechanism. When you borrow the funds from the bank, you will get a lump sum, and you need to repay it over set intervals within the (designated) period of time. This one may be a traditional loan type, but it does have its own advantages:

  • It can help you build business credit. This kind of loan would be great if you are trying to build business credit, which enables you to borrow (even) more money when you need it, but in the future
  • You deal with predictable payments. After being approved, you would know the exact payment that you need to make on a monthly basis and you know when it is due. As an owner, you have the chance to plan how to deal with the loan. You can leverage the funds along your way in developing a growth method and strategy.
  • You are given the advantage of flexible usage. A traditional (business) loan will give you access to the capital, so you can do what you want to develop the business. Let’s say that you need a new equipment or a new computer, then you can purchase them from the money you are given as the loan.


Business Factoring Loan

Many people say that this is the same as the traditional loan, but it isn’t. When you learn the details about how to get a small business loan, you’d know that this one has its own concept and system. You basically sell out a valuable asset, or the unpaid account receivables. You decide which one to sell, and then they put some paperwork forward, and then you will get your money. The factoring company would charge you and they will take the difference (between the owed debt and the one that they agree to pay to you). That’s basically how they make their profits.

This kind of loan has its own perks, such as:

  • You can use the funds for whatever you want
  • You can get the funds fast. In most cases, you can even get the money within the same day
  • You don’t have to deal with in-depth credit requirements. It’s not your business that has to deal with the risk, but the lender
  • This loan won’t add up the debt to the balance sheet
  • You can get paid for the debt that you may not collect on
  • You can protect your (business) credit while getting the funds you need for the business



As the name suggests, it’s basically related to smaller loans, ranging from $5,000 to around $50,000. Because of the amount, business owners may not have to deal with the strict requirements, which are typically outlined by the banks. As the owner, you may be able to work together with a government agency or a non-profit organization to get the loan.

As a part of your learning on how to get a small business loan, you should know more things about it:

  • SBA offers microloans, but its main requirement is that you aren’t using the money to refinance your existing debt or buy real estate.
  • Some microloans may be offered through a platform, in which several investors are joining. You will have to form a business ‘story’ so that the investors would be interested in lending you their money. When you may payment, you make it to the platform, and the platform will make the payment back to the investors.
  • In most cases, microloans are basically term loans that have payments within a set time period. As an owner, you should be able to plan it while still making crucial business decisions.


Merchant Cash Advance Loan

This kind of loan is completely different from the traditional one. The loan would be arranged through the so-called merchant cash advance lender. They would be responsible for extending a loan to the business. As a return, they want a percentage within the (future) credit card transaction sales. The repayment would be the daily percentage from the credit card transaction. That’s why the amount may vary on a daily basis, depending on how many transactions are made and how much of those transactions being equaled.

As a part of your learning on how to get a small business loan, here are some of the facts to know about this kind of loan:

  • This type will usually charge high interest rates. Most businesses taking these loans out do it for solving their short terms (cash) shortages.
  • Credit check won’t be necessary. The loan would be determined by the previous credit card sales and transactions. It’s not common for the lender to need a (business) credit report or even to know your credit score of the business. Because of this reason, this kind of loan is perfect for businesses having poor or not so great credit profiles.
  • This loan may take long time to repay. The repayment is made from your business’ credit card transactions, and they determine how long it takes for you to repay the loan. The longer it is, the more interest you need to face. However, it’s great for businesses in retail space or restaurants because they are likely getting a lot of credit card transactions on the daily basis.


Planning on

As a part of your how to get a small business loan study, you also need to know why you need to get a loan. Not all businesses need to take a loan. If you have your business going and it’s going great, and you don’t feel the need of expansion, then it’s likely that you don’t need a loan at all.

Never take out a loan if you don’t need it. And never do it without making a solid planning. Just like playing chess, you need to develop a solid strategy. What do you want to achieve in 2 or 3 years? What is your plan for your business? Have you come up with plans to repay the loan, if any? It’s advisable that you plan ahead, and then execute – and not the other way around. After you learn about the possible ways on how to get a small business loan and the possible resources to do it, you can develop your financial plan in the most logical way.

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