Things A Business Should Consider If They Need a Small Business Loan

| Read Time: 6 minutes
Share This Post

You have an idea, and you think you have everything you need but money to start your small business . Congratulations, you are probably ready to apply for a small business loan. There are a lot of options available to you, and you need to do your homework to learn about each one. Picking the loan that is best for you could make or break your small business. You need to make sure you are adequately prepared for each step in the loan process. CPAs and financial, thankfully, have done the hard part for us. Thanks to their trials and errors, we have to read all the information we will need to be successful in choosing the best small business loans.

Why Should I Consider a Loan for My Small Business

Whether you are just starting or have a great new idea for ways you can expand your small business , a small business loan is most likely going to be your best option. Sometimes, we all need financial help whether you have not opened yet or have been open for a week or a decade. Taking out a small business loan is the best way to get the fast cash you need to fix or improve your small business. Not only is it a great way to build credit and business relationships for the future, but it will also help you to make the right decisions without worrying about having the finances. For example, if you are opening a restaurant, you want to make sure you have top-of-the-line equipment and quality ingredients so you can provide your guests with an experience that keeps them coming back. Everything from décor and tablecloths to fresh produce and sharp knives will be the difference makers that help your small business be successful.

Types of Loans

There are many types of loans available for your consideration. Each one differs to help meet your needs. Specific options will always be better for you rather than for others. There is no one size fits all loans when it comes to small businesses.

  • Traditional bank loans are going to have better terms and interest rates but are harder to get approved. These loans will have stricter terms and may be hard for a new business to get approved for.
  • Government loans are going to be a great option because of the flexibility of SBA loans. The Small Business Administration or SBA is designed literally to help small businesses get started or recover from bad situations. The terms and interest rates on loans of this type will be fair.
  • Merchant cash advances are loans you take out and repay in installments that you and the bank can agree on, whether that is weekly or monthly. These loans may have higher interest rates but paying back with portions of your charged sales is a great and helpful perk.
  • Business credit cards are going to be the closest thing to a regular credit card. The interest rates are high, but some people do not mind this because of the comfort factor and familiarity they provide.
  • Long-term loans will be for more significant amounts where you do not mind having a long-term payment. Interest rates tend to be less, but these loans are for more substantial amounts of cash than your typical small business loan.
  • Business lines of credit are helpful because you can dip in and out of it until you max out your credit or close the account. It is encouraged by small business owners always to have a line of credit open in association with other loans.
  • Equipment loans are loans you can take out specifically for equipment, vehicles, or software. These loans can range from five thousand to five hundred thousand dollars. You will be paying interest monthly, and the life of this type of loan usually is two to four years.

Small Business Loan Requirements

There are many factors your potential bank will take into account when considering you as a new client.

  • Personal credit and the current amount of debt: any lender will check your personal credit score and look at the amount you owe to other businesses. It is highly encouraged that you clear all your personal debt before taking out a small business loan. Lenders will be a lot stricter if they see a large amount of debt already taken out by you.
  • The age of your business: Unfortunately, many lenders will only deal with a company that has been open for two years or more. This can be frustrating, but new businesses do not fear; there are several options for you.
  • Collateral loans: Collateral loans will be the best option for new businesses because they only require something of value put up to lower the risk for the lender.
  • Type of business: The kind of business you have will always be a factor. Lenders will look at certain types of companies with higher cash flow first for approval. This is an excellent example of why a thorough and realistic business plan is crucial for new business proposals.

General tips on how to get a Small Business Loan

The first thing you want to do is do your research on potential lenders. There are more lenders than can be counted, so pick the one you think will fit your needs best. Next, have a business plan and everything listed above ready to present to the lender. Think of this as a presentation because not only are you asking for money, but you are also selling yourself and your business idea. You believe in your idea for a small business, so be ready to explain to a stranger why you will be successful accurately. Lenders can get a feeling for you just based on this interaction alone. This can make of break securing your business loan. Be as specific as possible with the amount you want to borrow and present your ability to pay the loan back as clearly as you can. Again, be ready to offer up collateral as an option to increase your chances of getting approved. Also, when giving your presentation, try and speak the lender's language. Familiarize yourself with lender lingo so you can look as professional as possible.

Where Should I Get a Loan From?

While not always recommended, Microlenders are always an option for small businesses. These loans tend to be for less money than what a bank will offer. However, the interest rate tends to be higher, and you may not get the total amount you need. The only real upside is that the loan will be for smaller amounts, so you will pay back less interest and pay back the loan faster. On the other hand, Bank loans will be whatever amount you need and will have lower interest rates. The terms will also be more flexible. Microlenders tend to give more loans to people in more impoverished neighborhoods, so depending on where you want to have your small business located might affect your chances of being approved.


Whether or not to take out a loan for your small business is something only you can decide is the right move. The best thing you can do is educate yourself, so you know all your options. Knowing all your options will allow you to understand what is best for you and your small business. The best thing you can do is figure out a realistic amount and make sure the facts that you present while being considered are well researched and as active as possible. Again, for first-time borrowers, consider having something to offer as collateral so the lender will see less risk in your loan. So get that business plan finished and go open up your small dream business. Sources: First-Time Small Business Loans: 11 Do's and Don'ts | Small Business Loan Requirements | 10 Things the Bank Will Ask When You Need a Business Loan |

Did You Know?
We've funded over $400 million for small business owners since 2015