How Do Small Business Loans Work?

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Small Business Loans
What is a Business Loan?

A business loan is when you borrow a fixed amount for business needs (as opposed to for
personal needs) from a lender and agree to paying it back by instalments over a specified
timeline. Business loans usually have specific reasons like starting a business or fulfilling
purchase orders.
How Do Small Business Loans Work?
Small business loans give business owners access to capital to invest in their business. In the
typical small business loan structure, a lender will give a business owner money, which the
business owner must pay back, with interest, over a predetermined period of time. There are a
variety of business loans available—from term loans, SBA loans, to business lines of credit.
Some business loans are relatively hard or easy to qualify for. The details of your business—like
your time in business, financial health, credit score, and available collateral—all play a role in
determining the type of business loan you can get.
In this guide, we walk through exactly how a small business loan works, with details on how
each type of loan functions.
What do you need a small business loan for?

The first step of any business loan search is to determine what you need the financing for.
From bank loans, to inventory financing, to merchant cash advance… There are a lot of different
types of small business loans on the market. Each loan out there serves a different set of
business goals.
Need working capital to finance regular business expenses? A traditional business line of credit
could make sense. Need to finance past due invoices? Invoice financing is the perfect loan for
your business.
Some common business funding needs are:
● To start your business

● To quickly take advantage of a new business opportunity
● To expand your business
● To keep a cushion on your cash flow
● To manage your daily expenses
● To finance some equipment or inventory purchases
● And more
Pinpoint why you need the capital, and filter your search for the best small business loans to fit
that goal.
What can you actually afford?

Once you’ve determined why you need the small business loan, the next step is to think through
how much funding you need—and most importantly, how much small business loan you can
realistically afford.
One of the first questions lenders will ask you when you start your search for small business
loans is “How much are you looking for?”
Yes, we would all love a cool $5 million. But instead of thinking of this question as how much
you want or need, think along the lines of what you can actually afford. If you don’t know the
answer to that question, follow these steps.
How to get a business loan?

Getting a small business loan can be intimidating. You might not know where to begin your
search, with dozens of banks and alternative lenders competing for your attention. Even if you
have narrowed down a lender, you might be confused about where to go from there, especially
if this is your first business loan.
We’re here to make it easy for you. Figuring out how to get a business loan is as easy as these
five steps:
● Determine why you need a business loan. Pinpoint exactly how you’ll use the funds.
● Calculate how much debt you can afford. Look into your finances to determine your debt
service coverage ratio.
● Browse the different types of business loans. Think carefully about which product will fit
your needs best.
● Get your loan documents in order. Depending on the product you’re applying to, you’ll
need a few documents to move forward.
● Apply for and close your business loan. Be sure you know the details of your offer before
you sign on the dotted line.
How to Get a Loan to Start a Business
Getting your small business up and running is easier when you have a little money to work with.
Where can you go to get the funds you need to get your startup off the ground? Well, there are
the tried-and-true financing options for funding your new business: family and friends, private
investors, crowdfunding, and more.
But these days, small business owners have another option: startup business loans. Unlike
crowdfunding or investors, startup loans are traditional sources of small business funding.
Startup loans allow business owners to work with traditional lenders, just as they would with
other business loans.
Here’s a quick summary of our guide to how to get a loan to start a business, with details below:
● Review your startup costs. Be sure to understand what you’re using the loan for by
reviewing the startup costs you face.
● Get your documents and registrations together. Take care of the basics like your
business plan, your credit score, the necessary documentation, and the necessary
registrations.
● Check your qualifications. Up your chances to qualify by improving your credit, building
your assets, expanding your customer base, and updating your financial projections.
● Choose the right startup loan. Choose which type of startup loans you want to go for—
equipment financing, business lines of credit, business credit cards, or credit line
builders.
● Apply. Last, simply apply! If you do get an offer, be sure to read the fine print before you
accept.

How Do Small Business Loans Work?

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What are some common reasons businesses need loans?

What steps should a business take to determine how much funding they need?

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Small Business Loans

What is a Business Loan?

How Do Small Business Loans Work?

What do you need a small business loan for?

● To start your business

What can you actually afford?

How to get a business loan?

How to Get a Loan to Start a Business

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