Types of Small Business Loans  

Term Loans: These are loans you pay back in fixed amounts over time, usually between 1 to 10 years. The interest rates can vary.  

SBA Loans: These are loans backed by the government, offering good terms and low down payments. They can lend up to $5 million and are good for many business needs.  

Equipment Financing: This loan is for buying equipment, and your equipment acts as collateral (something the lender can take if you don’t pay).  

Lines of Credit: You can borrow money up to a limit whenever you need it, and pay interest only on the amount you use.  

Invoice Financing: If your business has unpaid invoices, you can get most of that money right away instead of waiting for customers to pay.  

Merchant Cash Advances: You receive money instantly in exchange for a portion of your future credit card sales. This is fast but can be expensive.

Important Loan Terms  

Interest Rate: The cost of borrowing money each year. Fixed rates stay the same, variable rates can change.  

APR: The total cost of the loan, including fees. Always compare APRs when choosing a loan.  

Collateral: It refers to assets (such as property or equipment) that you promise the lender. If you do not pay, they may seize these assets.

Personal Guarantee: If the business is unable to repay the loan, the owner will.   

Loan-to-Value Ratio: For collateral-backed loans, how much you borrow compared to the asset’s value. A lower ratio is better.

What Do Lenders Look For? 

Credit Score: A higher score (above 680) improves your chances.  

Time in Business: Usually, lenders want your business to be at least 2 years old.  

Revenue: Your annual income should meet the lender's minimum standards.  

Cash Flow: You need to show that your business regularly makes enough money to pay back the loan.  

Debt-to-Income Ratio: Your existing debts compared to your income. A lower ratio is better.

How to Apply  

Gather Documents: Prepare tax returns, financial statements, bank statements, and business licenses.  

Make a Business Plan: Show how you will use the money and how you will pay it back.  

Compare Lenders: Look at different banks, credit unions, and online lenders for the best rates and terms.  

Apply: Submit your applications to your top choices.

Choosing the Right Loan  

Pick a loan that fits what your business needs now and in the future. Short-term loans are good for emergencies, while long-term loans are better for big investments. Make sure the loan’s repayment plan matches your cash flow.

Bottom Line  

Knowing the basics of small business loans helps you make smarter decisions. It can improve your chances of getting approved and help you find the best deal. With the right loan, your business can grow and succeed without taking on too much financial stress.