Are you hoping to learn more about how business loans work and which might be right for your business? Our educational resources below can help give you more information about what options are available and help you make smart choices when making moves with your own business.
Business loans are essential financing options for small and large businesses to grow,
expand, or even maintain
their operations. There are several types of small business financing and loans
available in the market, each with
its unique features and requirements. Understanding the types of loans for small
businesses is important in order
to choose the most suitable financing option for a business's specific needs. In this
section, we will explore the
most common types of small business loans used, including secured loans, unsecured
loans, term loans, lines of credit,
equipment loans, invoice financing, and SBA loans.
Secured loans require collateral to secure the loan, such as property, equipment, or
inventory. The collateral provides
a lender with security in case a borrower defaults on the loan. As a result, secured
loans are less risky for lenders and
have competitive interest rates compared to unsecured loans. However, the borrower risks
losing their collateral if they
fail to repay the loan.
Secured loans are ideal for businesses that need significant financing, such as
purchasing real estate or equipment. They are
also suitable for businesses that have a limited credit history or a low credit score.
The loan amount and interest rate depend
on the collateral's value, the borrower's creditworthiness, and the lender's terms and
Unsecured loans do not require collateral to secure the loan, making them riskier for
lenders. As a result, this small business
loan has higher interest rates than secured loans. However, they are ideal for
businesses that cannot provide collateral or
do not want to risk their assets.
Unsecured loans are suitable for small businesses that need financing for short-term
business needs, such as working capital or inventory.
They are also suitable long term loans for businesses with an established credit history
or a high credit score. The amount and interest
rate depend on the borrower's creditworthiness, income, and repayment history.
Term loans are a type of loan that provides a lump sum of money that the borrower must
repay over a set period. The repayment period typically
ranges from one to ten years, depending on the amount of the loan and the lender's terms
and conditions. Term loans are good for businesses that
need financing for long-term investments, such as purchasing equipment or real estate.
Term loans can be secured or unsecured, and the interest rates depend on the amount of
loan requested, repayment period, and the borrower's
creditworthiness. The borrower must make regular payments, including principal and
interest, until the loan is fully repaid.
Lines of Credit
Lines of credit are a type of revolving credit that allows businesses to access a
pre-approved amount of funds whenever they need them. The borrower
only pays interest on the amount that they use, making business lines of credit ideal
for short-term financing needs. Lines of credit can be secured or
unsecured, and the interest rates depend on the borrower's creditworthiness and the
lender's terms and conditions.
Lines of credit are suitable for businesses that need flexible financing options, such
as covering cash flow gaps or unexpected expenses.
They are also suitable for businesses that have seasonal fluctuations in revenue or need
to finance short-term projects.
Equipment loans are a type of secured loan that provides financing to purchase equipment
or machinery for a business. The equipment serves as collateral
for the loan, making this small business loan less risky for lenders. Equipment loans
typically have competitive interest rates and longer repayment periods
than other types of secured loans.
Equipment loans are suitable for businesses that need to purchase expensive equipment or
machinery, such as construction companies or manufacturing
businesses. The loan amount and interest rate depend on the equipment's value, the
borrower's creditworthiness, and the lender's terms and conditions.
Equipment loans may also require a down payment or a percentage of the equipment's value
as a deposit.
Equipment loans may offer several benefits to businesses, such as improving efficiency,
reducing downtime, and increasing productivity. With equipment
financing, businesses can acquire the latest technology and equipment without the need
for a large upfront investment.
Invoice financing is a type of short-term financing that provides businesses with
immediate cash flow by using unpaid invoices as collateral. The lender pays the business
of the invoice amount, usually ranging from 80% to 90%, and collects the payment from
the customer when the invoice is due. Once the customer pays the invoice, the lender
pays the remaining
amount to the business, minus the lender's fees.
Invoice financing is suitable for businesses that have a high volume of outstanding
invoices or customers with a longer payment cycle. Invoice financing can help businesses
improve their cash
flow, cover short-term expenses, and avoid the need for expensive debt or equity
SBA loans are a type of government-guaranteed loan program that provides financing to
small businesses. The Small Business Administration (SBA)
guarantees a portion of the loan amount, making it less risky for lenders to provide
financing to small businesses. SBA lenders offer lower interest
rates, longer repayment periods, and flexible terms compared to other types of loans.
SBA loans are suitable for businesses that need financing for long-term investments,
such as purchasing real estate or expanding their operations.
SBA loans are also suitable for startups or businesses with limited credit history or a
low credit score. The loan amount and interest rate depend
on the business's size, industry, financial performance, and the lender's terms and
How to Get a Business Loan
Getting a business loan can be a helpful and important step in starting or expanding a
However, the process of securing a loan can be a bit complex if you don't know the right
to take and the information you'll need to provide. In this section, we will look at the
factors that lenders consider when evaluating a loan application.
Credit Score and History
One of the most critical factors that lenders consider when evaluating a business loan
application is the
borrower's credit score and credit history. A credit score is a numerical representation
of a borrower's
creditworthiness, based on their past credit history, debt-to-income ratio, and other
A higher credit score indicates a lower risk of default and is more likely to be
approved for a loan.
Before applying for a loan, it is essential to review and understand your credit score
and credit history.
If you have a low credit score or a history of late payments, it can negatively
impact your loan application.
You can work on improving your credit score by paying bills on time, reducing debt, and
correcting errors in
your credit report.
Time in Business
Another important factor that lenders consider when evaluating a loan application is the
borrower's time in business.
Lenders prefer businesses that have been operating for at least a couple of years, as
they have a proven track record
of generating revenue and managing their finances. Of course, some lenders may consider
newer businesses if they have
a strong business plan and financial projections, so it's not a be-all-end-all
Annual Revenue and Profitability
Lenders also consider a business's annual revenue and profitability when considering
whether or not to provide financing.
Businesses with higher revenue and profitability have a better chance of securing a loan
as they demonstrate the ability to repay the loan.
Lenders may also evaluate a business's debt-to-income ratio, which is a measure of the
amount of debt compared to income.
A high debt-to-income ratio may indicate a high risk of default, potentially making it
more difficult to secure a loan.
Collateral is an asset that a borrower pledges as security for a loan. Lenders may
require collateral to reduce their risk of lending to a business.
Collateral can be in the form of property, equipment, inventory, or accounts receivable.
The amount and type of collateral required may depend on the loan amount and the
borrower's creditworthiness. It is essential to understand the terms
and conditions of the loan agreement and the risks associated with pledging collateral.
A business plan is a written document that outlines a business's objectives, strategies,
and financial projections. Lenders may require a
business plan to evaluate the borrower's ability to manage their finances and generate
A well-written business plan can increase the chances of securing a loan and demonstrate
the borrower's understanding of their own business idea
and the market. It is essential to include realistic financial projections and a
repayment plan in the business plan.
Choosing the Right Business Loan
The Benefits of Having a Separate Bank Account for Your Business
Opening a business bank account is essential for managing your business finances effectively.
It provides a separate space to manage your business funds, transactions, and expenses, which
helps in keeping your personal finances separate from your business finances.
Some benefits of having a separate bank account for your business include:
Easier bookkeeping: A business bank account helps in keeping
your business transactions separate from personal ones, which makes
bookkeeping easier. This means you won't have to sort through personal
transactions when preparing your business's financial statements, tax
returns, or applying for a loan.
Professional image: A business bank account helps in building
a professional image and credibility. It shows you are serious about your business
and committed to responsibly managing your finances.
Payment processing: A business bank account makes it easier to process
payments from clients and pay vendors. You can receive payments through checks,
electronic transfers, or credit card payments, making it easier to manage cash flow.
Access to banking services: A business bank account provides access to a
whole range of services, such as credit cards, lines of credit, and loans, which can
help you manage cash flow, expand your business, and fund growth.
Legal and Tax Implications of Commingling Personal and Business Funds
Commingling personal and business funds can have legal and tax implications. It can lead to legal
issues if a business owner is sued, as personal assets may be at risk. Additionally, commingling
funds can make it difficult to track business expenses for tax purposes, potentially leading to
incorrect tax filings and penalties.
Separating business and personal funds can help protect personal
assets, avoid potential legal issues, and ensure accurate tax filings.
How a Business Bank Account Can Help You Manage Your Finances and Track Your Business's Performance
A business bank account can help you manage your finances by providing tools to track cash flow, manage
expenses, and reconcile accounts. You can also use a business bank account to create a budget, set financial
goals, and monitor your business's performance. By tracking your business's financial performance, you can make
informed decisions, identify areas of improvement, and plan for growth. Additionally, a bank account for
business provides access to financial statements and transaction records, which can be used to apply for
loans, prepare tax returns, and analyze financial trends.
Applying for a Business Loan
If your business needs financing, applying for a business loan can be an effective way
to obtain the necessary funds. The application
process for a loan may seem intimidating, but understanding the steps involved can help
make the process smoother. In this section, we
will discuss the steps to applying for a business loan.
Step 1: Gathering Required Documents
The first step in the loan application process is gathering the required documents.
Lenders typically require specific documents to assess
your business's financial health and creditworthiness. These documents may include your
business plan, tax returns, financial statements,
bank statements, and legal documents such as business licenses and contracts.
Before you start the application process, ensure that you have all the required
documents in order. This will help expedite the
application process and increase the likelihood of approval.
Step 2: Completing the Loan Application
Once you have gathered all the necessary documents, the next step is to complete the
loan application. The application will typically
require information about your business, including its legal structure, industry, and
revenue. You may also need to provide personal
information, such as your credit score and history.
It is essential to be thorough and accurate when completing the application to increase
the likelihood of approval. If you have
any questions or concerns, do not hesitate to contact the lender for clarification.
Step 3: Waiting for Approval
After completing the loan application, the next step is to wait for the approval. The
time it takes for approval may vary depending
on the lender and loan type. Some lenders may provide a decision within a few days,
while others may take several weeks.
During this waiting period, the lender may request additional documentation or
clarification. It is really important to
be available to respond promptly to any requests to avoid delays in the approval
By gathering the required documents, completing the loan application accurately, and
waiting for approval, you
can increase the likelihood of obtaining the financing your business needs.
Alternatives to Business Loans
While a loan can be an excellent source of financing for small businesses, they are not
always the best option.
Depending on your business's needs and circumstances, you may want to consider
alternative funding options.
Business grants are an excellent alternative to business loans for entrepreneurs who do
not want to incur debt.
Unlike loans, grants do not need to be repaid. Business grants are typically provided by
the government, private
foundations, or non-profit organizations to support specific business activities, such
as research and development
or hiring employees.
The application process for business grants is typically more rigorous than for loans,
as the funding is limited and
highly competitive. However, if your business meets the eligibility criteria, a grant
can provide a significant financial boost.
Crowdfunding is another alternative funding option that has become increasingly popular
in recent years. With crowdfunding,
businesses can raise funds from a large number of individuals through online platforms.
Crowdfunding can be an effective way to obtain financing for business purposes while
also building a customer base and
increasing brand awareness. However, it requires a significant amount of effort and time
to create a successful crowdfunding campaign.
Angel Investors and Venture Capitalists
Angel investors and venture capitalists are individuals or companies that invest in
startups and early-stage businesses.
They typically provide funding in exchange for equity in the company.
While angel investors and venture capitalists can provide significant funding, they also
expect a high return on their investment.
They may also require a significant say in the business's operations and
Personal Savings and Credit
It is also possible to use personal savings and credit. This option is ideal for
entrepreneurs who have a significant amount
of personal savings or a good credit score.
Using personal savings and credit can be a convenient option, as there is no application
process or approval required. However,
it also comes with risks, as using personal funds to finance a business can put personal
assets at risk.
Tips for Getting Approved for a Business Loan
Getting approved for a business loan can be a bit of a challenging process, especially
if you are a small business
owner. However, there are several things you can do to increase your chances of
approval. In this section, we will
discuss some tips for getting approved for a loan.
Improve Your Credit Score
Your credit score is one of the most critical factors that lenders consider when
evaluating your loan application.
If your credit score is low, you may have difficulty getting approved for a loan or may
be offered a higher interest rate
To improve your credit score, pay your bills on time, keep your credit card balances
low, and be sure to regularly
monitor your credit report in order to catch and dispute any errors.
Build Strong Business Relationships
Having strong business relationships can also increase your chances of getting approved
for a loan.
Lenders are more likely to approve loan applications from businesses with a good
reputation in their industry.
To build strong business relationships, attend networking events, join industry
associations, and participate
in local business groups.
Present a Solid Business Plan
Having a solid business plan is essential when applying for a business loan. Your
plan should outline your company's goals, financial projections, and how you plan to use
the loan funds.
A well-written business plan can demonstrate to lenders that you have a clear
understanding of your
business's financial needs and can repay the loan.
Use Collateral if Possible
Collateral is something of value that you pledge as security for the loan. If you
default on the loan,
the lender can seize the collateral to repay the debt.
Using collateral can increase your chances of getting approved for a loan and may also
result in a lower interest rate.
However, using collateral also means that you are putting your business assets at risk.
Compare Loan Offers from Different Lenders
It is also essential to compare loan offers from different lenders before applying.
Lenders offer loans with different interest
rates, fees, and repayment terms, so it is crucial to shop around to find the best deal.
Comparing loan offers can help you find a loan that fits your business's needs and
budget, while also ensuring that you are getting
a fair deal.
Types of Businesses that May Need Loans
Business loans can be a useful tool for many different types of businesses. In this
section, we will discuss some of the best small
business loans and the types of businesses that may need loans to support their
Startups are newly formed businesses that are often in need of capital to get their
operations off the ground. They may need funding for
equipment, office space, inventory, and other startup costs.
Loans can be an excellent source of funding for startups, allowing them to launch their
business and start generating revenue.
Small businesses are the backbone of the economy, but they often face financial
challenges. Small businesses may need loans to cover operating expenses,
purchase inventory, or invest in marketing and advertising.
These loans can provide small businesses with the funding they need to stay afloat and
grow their business.
A growing business may need loans to fund expansion or investment opportunities. They
may need to hire additional staff, invest in new equipment, or open a new location.
Business loans can provide a growing business with the capital they need to take
advantage of these opportunities and continue to grow.
Limited liability companies (LLCs) are a popular type of business structure that offers
liability protection for owners. LLCs may need loans to cover startup costs, operating
expenses, or expansion.
Business loans can be an excellent source of funding for LLCs, allowing them to achieve
their business goals while protecting their personal assets.
Businesses Facing Unexpected Expenses or Emergencies
Unexpected expenses or emergencies can strike any business at any time. Businesses may
need loans to cover the costs of unexpected repairs, legal fees, or other expenses that
are not budgeted for.
Business loans can provide businesses with the capital they need to handle these
unexpected expenses and continue to operate without interruption.
Businesses in Need of Capital for Expansion or Investment
Businesses may need loans to fund capital investments, such as new equipment or
technology. These investments can help businesses become more efficient and competitive,
but they often require significant upfront capital.
Business loans can provide businesses with the funding they need to make these critical
investments and stay ahead of the competition.
An Alternative to Business Loans: The Revenued Flex Line
If you need funding for your business quickly, a loan from a bank or traditional lender
may not always be the best option. Revenued offers a Flex Line solution that uses
revenue-based financing to provide flexible
spending limits based on your business revenued – not your personal credit score.
Revenue based financing is an investment not a loan. Revenued purchases a portion of
your future receivables at a discount in exchange
for providing working capital in the present. Because of this, receiving capital from
Revenued can be much faster than borrowing from a bank.
The Revenued Flex Line vs. Business Loans
Revenue-based financing like the Revenued Flex Line operates differently from bank
loans. Because the Revenued Flex Line is a purchase of future receivables and not a
loan, it bases eligibility primarily on the revenue
of the business itself instead of business owner’s personal credit score.
Unlike many other funding options like business loans, the Revenued Flex Line does not
require a hard credit inquiry, so there is no temporary dip in the credit score of the
business owner. Additionally,
instead of one fixed funding amount from a business loan, the spending limit on the Flex
Line increases in real-time as a business's revenue increases, making it a great option
for businesses who are seeing
rapid growth and need access to more funding for their operations. Although there are no
draw fees or interest charges with the Revenued Flex Line, Revenued does charge a factor
rate which may end up being
more expensive than a conventional business loan. It’s important to weigh the pros and
cons when making any financing decision for your business and if your personal credit
score or timing are at the top
of your list of deciding factors, the Revenued Flex Line can still be a great option to
Small business owners often find themselves juggling numerous responsibilities, including taking care of financial matters. One critical financial aspect that they cannot afford to overlook is working capital. In this…
Merchant Cash Advance: Definition and Purpose The Concept of Merchant Cash Advance A merchant cash advance (MCA) is a type of financing option available for businesses, primarily small and medium-sized…
As online banking has become more prevalent, financial technology (fintech) apps like Revenued need to be able to access your financial accounts to provide their services. This is where Plaid…
Business Loans FAQ
There are several types of business loans available, including secured loans, unsecured loans, term loans, lines of credit, equipment loans, invoice financing, and SBA loans. Each type of loan has its own unique features and benefits.
Qualifying for a loan typically requires meeting certain criteria, such as having a strong minimum credit score and history, being in business for a certain amount of time, having sufficient annual revenue and profitability, and offering collateral or a solid business plan.
The amount that you can borrow with a business loan depends on various factors, including the type of loan, your credit score and history, and the lender's requirements. Typically, business loans can range from a few thousand dollars to several million dollars.
The time it takes to get approved for a loan can vary depending on the lender and the type of loan. Some lenders may be able to approve loans within a few days, while others may take several weeks or more.
Interest rates and fees for business loans can vary depending on the lender, the type of loan, and other factors. Typically, interest rates for business loans range from around 2% to 30% or more, and fees may include origination fees, application fees, and prepayment penalties.
Yes, you can use a business loan to start a new business. However, you may need to provide a solid business plan and meet other requirements to qualify for a loan.
Alternatives to a business loan include business grants, crowdfunding, angel investors and venture capitalists, and personal savings and credit. Each alternative has its own unique features and benefits.
It can be challenging to obtain a business loan with no revenue because that's how lenders typically assess your ability to repay the loan. However, there are alternative funding options like personal loans, business credit cards, or secured loans, and some lenders even offer startup loans specifically designed for businesses without a revenue history.
Generally, a credit score of 680 or higher is considered good for most business loans. But, some lenders may be more lenient or have specific credit score requirements. It's important to review the lender's eligibility criteria to determine the specific credit score range they consider acceptable.
If you're denied a business loan due to bad credit, there are some things you can do. Start by identifying the reasons for the rejection and address any issues impacting your credit. Improving your credit score, paying down existing debts, and resolving any errors on your credit report can help. If all else fails, you can also explore alternative funding options such as secured loans, crowdfunding, or finding a co-signer with a stronger credit profile.
The most common type of small business loan is the term loan. Term loans provide a lump sum of money that is repaid over a fixed term, typically with a fixed interest rate. They can be used for various business purposes, such as purchasing equipment, financing expansion, or covering working capital needs. Term loans offer predictable repayment schedules, making it easier to plan cash flow.
A fixed business loan has an interest rate that remains constant throughout the loan term. This means your monthly payments stay the same, providing predictability and stability. A variable business loan has an interest rate that can fluctuate based on market conditions. This means your monthly payments may change over time. Variable loans often have a lower initial interest rate but can be riskier as they are subject to market fluctuations.
The amount you can get for a small business loan depends on factors like your business's financial health, your creditworthiness, collateral, and the lender's criteria. Generally, small business loans can range from a few thousand dollars up to several million dollars. The loan amount is typically determined by assessing your business's financials, including revenue, cash flow, and profitability, as well as the purpose of the loan.