• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

The College Investor

Student Loans, Investing, Building Wealth

  • About
  • Podcast
  • Research
  • Contact
  • Save For College
      • How To Start

      • How To Save For College
      • How To Pay For College
      • What Is the Average Cost of College?
      • What Is A 529 Plan and Where to Open One in Your State
      • How Much Should You Have In A 529 Plan By Age
      • How To Use A 529 Plan For Private Elementary And High School
      • What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?
      • The Best Brokers To Open A 529 Plan
      • Tools + Accounts

      • 529 Plans: The Ultimate College Savings Plan
      • 529 Plan Contribution Limits
      • Prepaid Tuition Plans | What To Know
      • Understanding And Using 529A ABLE Accounts
      • Using A Roth IRA To Save And Pay For College
      • FAFSA Deadlines for Financial Aid
      • CollegeBacker Review
      • Upromise Review
      • UNest Review
      • Other Options

      • Student Loan And Financial Aid Programs By State
      • The Guide To Military And VA Education Benefits
      • How To Fill Out The FAFSA
      • How To Find College Scholarships
      • The Best College Scholarship Search Websites
      • How To Find Grants To Pay For College
      • Pell Grants: What They Are And How To Qualify
      • Understanding Federal Work-Study
      • How To Use A 529 Plan If Your Child Doesn’t Go To College
  • Student Loans
      • Borrowing

        • How Student Loans Work
        • How To Apply For A Student Loan
        • Best Student Loans And Rates In January 2023
        • 10 Best Private Student Loans Of January 2023
        • Best Student Loans To Pay For Graduate School
        • Best Student Loans To Pay For Medical School
        • Parent Loans To Pay For College
        • No-Cosigner Student Loan Options
        • Guide To Income Sharing Agreements (ISAs)
        • Best International Student Loans
      • Get Out Of Debt

        • Best Student Loan Refinance Companies In January 2023
        • Best Student Loan Repayment Plans
        • Best Student Loan Refinancing Bonuses And Promotional Offers Of January 2023
        • Student Loan Forgiveness Programs (The Complete List)
        • The Full List Of Student Loan Forgiveness Programs By State
        • Public Service Loan Forgiveness (PSLF)
        • Top Student Loan Scams
        • Average Student Loan Monthly Payment
        • Average Student Loan Debt By Year
      • Reviews

        • Credible Review
        • Splash Review
        • Ascent Review
        • Citizens Bank Review
        • Commonbond Review
        • Earnest Review
        • ELFI Review
        • Laurel Road Review
        • LendKey Review
        • SoFi Review
  • Investing
      • How To Start

        • How To Start Investing in High School
        • How To Start Investing In College
        • How To Start Investing In Your Twenties For 22 – 29 Year Olds
        • How To Start Investing In Your 30s For 30 – 39 Year Olds
        • How To Start Investing With $100 Or Less
        • How To Give Kids The Gift Of Stock
        • What Is Dividend Growth Investing
        • IRA Rollover Chart
      • Tools + Accounts

        • Best Online Stock Brokers
        • The Best Traditional And Roth IRA Accounts
        • The Best Robo-Advisors
        • The Best Investing Apps
        • The Best Places to Trade Options
        • The Best Places To Open A Health Savings Account
        • The Best Solo 401k Providers
        • The Best Self-Directed IRA Providers Of 2023
        • Best Cryptocurrency Exchanges
      • Reviews

        • Vanguard Review
        • Fidelity Review 2023
        • M1 Finance Review
        • TD Ameritrade Review 2023
        • Charles Schwab Review
        • Robinhood Review
        • Webull Review
        • Betterment Review 2023
        • Wealthfront Review
  • Earn More Money
      • Extra Income

        • 20 Best Side Hustles You Can Start Earning With In 2023
        • 53 Side Hustle Ideas To Make Money Fast
        • 100 Ways To Make Money In College
        • 80 Ways To Make Money From Home In 2023
        • 5 Quick Money Making Ideas (That Take Less Than 1 Hour)
        • 10 Interesting Ways You Can Make Money Driving
        • High-Paying Side Gigs That Earn $1,000 or More Per Month
        • The 10 Best Money-Making Apps
        • Paid Surveys: Earn Money For Giving Your Opinion Online
        • 10 Crazy Ways To Make $10,000 You’ve Never Heard Of
      • Build Wealth

        • 40 Passive Income Ideas You Can Use To Build Wealth In 2023
        • 3 Ways To Make $50,000 Per Year Without Working With Passive Income
        • How To Become A Real Estate Investor With Just $500
        • 15 Best Online Business Ideas
        • Residual Income: 7 Super Smart Ways to Build It
        • The Most Common Multiple Income Streams
        • How To Become A Real Estate Mogul With Only $10,000
      • Reviews

        • Fundrise Review
        • RealtyMogul Review
        • FarmTogether Review
        • AcreTrader Review
        • Swagbucks Review
        • Survey Junkie Review
        • TopCashback Review
        • DoorDash Review
  • Personal Finance
      • Banking

        • 10 Best High Yield Savings Accounts Of January 2023
        • 10 Best Money Market Accounts Of January 2023
        • 10 Best Free Checking Accounts In January 2023
        • Best Bank CD Rates Of January 2023
        • 10 Best Business Checking Accounts In January 2023
        • Best Online Banks Of January 2023
        • Best Credit Unions Nationwide Of January 2023
        • Best College Student Checking Accounts Of January 2023
      • Insurance

        • Best Life Insurance Companies
        • Renters Insurance
        • Car Insurance
        • Pet Insurance
        • Umbrella Insurance
        • Disability Insurance
        • Tuition Insurance
        • Travel Insurance
      • Credit Tools

        • Best Budgeting Apps
        • Cash Advance Apps
        • How To Get A Free Credit Score Report
        • Best Credit Monitoring Services For 2023
        • Debt Settlement: Inside The Secret World
        • Credit Repair Explained: Should You Pay For Help?
        • Best Personal Loan Companies And Lenders
        • Online Loan Companies To Borrow From Home
      • Tax

        • Best Tax Software
        • Free Tax Software
        • IRS Tax Refund Calendar
        • Common IRS Questions and Errors
        • Federal Tax Brackets
        • Capital Gains Tax Brackets
        • 401k Contribution Limits
        • IRA Contribution Limits
        • HSA Contribution Limits
  • Forum
  • Search
Home » Loans » Business Loans » Business Loans | Guide To Small Business Loans

Business Loans | Guide To Small Business Loans

Updated: July 6, 2022 By Robert Farrington

Tweet
Share18
Share
Pin82
Email
Print

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

There are thousands of financial products and services out there, and we believe in helping you understand which is best for you, how it works, and will it actually help you achieve your financial goals. We're proud of our content and guidance, and the information we provide is objective, independent, and free.

But we do have to make money to pay our team and keep this website running! Our partners compensate us. TheCollegeInvestor.com has an advertising relationship with some or all of the offers included on this page, which may impact how, where, and in what order products and services may appear. The College Investor does not include all companies or offers available in the marketplace. And our partners can never pay us to guarantee favorable reviews (or even pay for a review of their product to begin with).

For more information and a complete list of our advertising partners, please check out our full Advertising Disclosure. TheCollegeInvestor.com strives to keep its information accurate and up to date. The information in our reviews could be different from what you find when visiting a financial institution, service provider or a specific product's website. All products and services are presented without warranty.

Business Loans

Two things often happen when a business borrows money:

  • The infusion of cash propels your business to higher earnings.
  • Repaying the loan cuts into your revenue and stifles your expansion.

Achieving the first outcome while avoiding the second should be your goal when shopping for the right business loan.

With dozens of different business lending programs, many borrowers can strike the right balance. It just takes a little research into the options at your disposal.

In this guide, we'll walk you through the basics of business loans so you can pick the right funding source to see your business thrive.

If you just want to get a quick quote on a business loan, check out One Park Financial. They offer business loans with low minimums and qualifications. Check out One Park Financial here >>

Table of Contents
Types of Business Loans You Have Access To
Getting A Business Loan to Grow Your Business
Business Loans to Help Cash Flow
Can Business Loans Fund Startups?
Deciding Which Lender is Right For You
Should You Borrow?
Bottom Line: Business Loans Are Serious Business

Types of Business Loans You Have Access To

Lenders offer so many kinds of loans because business owners have a wide variety of needs.

Finding a loan to start a business will be different from borrowing money to upgrade equipment. A loan to ease seasonal cash flow problems won’t resemble a loan to launch a new product line.

To find the right kind of loan, you’ll first need to answer some key questions such as:

  • Amount: Exactly how much money do you need?
  • Purpose: Why exactly do you need the money? For operating expenses or equipment, for example.
  • Timing: How quickly do you need the money? How quickly can you repay the loan?
  • Collateral: Does your business have collateral to secure the loan or would you need to put up personal collateral?
  • Whether to borrow: Is a loan really the best way to fund your business?

Keeping these questions in mind can save you some time as you explore the following loan options.

Getting A Business Loan to Grow Your Business

An existing business hoping to expand capacity, open a new branch, or start offering a new product or service has many borrowing options.

Here are the best places to get a business loan:

Term Loans

A business term loan works kind of like a home mortgage. You can borrow a fixed amount of money and pay it back with interest over a specified period of time.

Many lenders offer $1 million or higher to borrowers, making these loans ideal for businesses requiring larger investments.

Online and traditional banks offer term loans, and an existing business can typically get funding quickly.

Lenders will require some form of collateral, whether business property or personal property. Lenders also will want to see at least a year of business success before lending. Some programs may require several years worth of successful operation.

Best for: Large expansions in an existing business.

Leading lenders: Credibility Capital, Currency Capital, Lending Club, Street Shares

SBA Loans

The federal Small Business Administration helps small companies get better loan terms by guaranteeing business loans. With an SBA-backed loan, your bank can afford to give your business a lower interest rate.

Benefits also include longer payback periods which can reach 25 years for business real estate purchases.

However, like many federally subsidized loans, you’ll have to deal with some red tape in the application process, which takes time.

It’s nearly impossible for a startup to secure financing through the SBA, though the administration does have a microloan program for startups.

Best for: Large expansions and/or business real estate purchases

Leading lender: Live Oak Bank

Equipment Loans

An existing business in need of infrastructure updates -- whether for physical infrastructure like printing equipment or systems infrastructure like software upgrades -- may benefit from an equipment loan.

You can get an equipment loan with terms matching the lifespan of your equipment, emulating a lease agreement, while still benefiting from equipment ownership.

The equipment itself can serve as the collateral, making equipment loans even more attractive to business owners. You should expect to make a down payment, though.

Borrowers should be careful to avoid lending terms that exceed the useful life of the equipment.

Best for: An existing company purchasing essential equipment

Leading lenders: Credibility Capital, Currency Capital, Street Shares

Business Lines of Credit

For shorter-term and less-defined business needs, a business line of credit can help.

A line of credit works more like a credit card: You can borrow a little at a time until you reach your account maximum.

If you’ll be expanding your business slowly, or if you don’t know exactly how much you’ll need, a line of credit could give you the flexibility you’d need.

Make sure you have a good credit record and a reliable stream of revenue before applying because these loans don’t typically require collateral.

Also, expect a higher interest rate and maintenance fees.

Best for: Ongoing expansions or projects without a firm budget.

Leading lenders: Street Shares, BlueVine, Fundbox (for applicants with lower credit scores or businesses with only three months of operations).

Business Loans to Help Cash Flow

The business cycle can be brutal in some industries. If your company needs some financial flexibility to get through a rough time, these programs can help.

Some seasonal businesses who earn almost all of their revenue in a few months depend on this kind of creative financing.

Check out our guide to finding the best business loan lenders here.

Invoice Factoring

A business with cash flow problems can benefit from invoice factoring, which lets you turn upcoming invoices into current cash flow.

This can help if you’re expecting invoice payments within two months, for example, but you can’t wait that long for the money. Essentially, you’re selling your upcoming invoices to a factoring company which then becomes responsible for collecting on the invoices.

Use this option only when you know for sure your customers will pay their invoices, and expect to incur some high fees to make it happen.

Best for: Solving cash flow problems when you know your customers will pay their bills in the near future.

Leading providers: BlueVine and Fundbox

Invoice Financing

With invoice financing, you use your unpaid invoices as collateral for a loan. Many business owners prefer this method to invoice factoring because your customers wouldn’t know their unpaid invoices had been leveraged for cash.

You’ll incur steep fees, and unlike invoice factoring, you’re still responsible for collecting the invoices when they come due. This method can usually generate needed money quickly.

Best for: Solving cash flow issues when you’d rather maintain control of your upcoming invoices.

Leading providers: BlueVine and Fundbox

Merchant Cash Advances

A merchant cash advance isn’t technically a loan. It’s a source of cash you can pay back through your business’s future sales.

As repayment, the advancer will usually take a percentage of your incoming credit and debit card transactions, though you could set up automatic withdrawals from a bank account in some cases.

You’ll get cash quickly and without the need for collateral, but the repayment terms can crimp your cash flow down the line.

Best for: A business in need of quick cash who can’t find better terms elsewhere. Also, stay away from this option if your business doesn’t receive a high volume of credit and debit card sales.

Leading providers: Kabbage and OnDeck

Business Credit Cards

Sometimes a simple business credit card can get you through a rough patch.

As with any credit card, expect high annual percentage rates and the possibility of annual fees. 

However, some credit cards offer great perks that can reward your spend. Check out our list of the best credit cards for bloggers and online businesses.

If you can get a card with cash back or other rewards programs, you may as well take advantage of the promotions.

Can Business Loans Fund Startups?

New startups struggle to find business loans. Lenders want to see a successful track record of business success before extending financing.

This automatically excludes startups, and it also excludes most businesses with less than one year in operation.

Also, startups don’t typically have business collateral to borrow against, which further complicates the lending process.

It may be possible for a startup to find financing with an online bank charging exorbitant interest charges. Interest rates for these loans sometimes surpass 100 percent.

It’s more likely an emerging entrepreneur will find funding with:

Microloans

Startups can often secure a smaller amount of financing with a microloan.

By “smaller amount” I mean $10,000 - $50,000.

Along with small infusions of capital, micro lenders also provide guidance for entrepreneurs to help them succeed.

These programs work best for startups who need money for computers and software, to find office space, or for other essential equipment.

Micro lenders tend to be nonprofits with a goal of fostering business development, so you should expect favorable lending terms but stringent guidelines.

Because these loans have a purpose -- to help underdeveloped areas -- they aren’t available in all cities or neighborhoods.

Leading private lenders: Grameen America, LiftFund

Leading SBA-backed micro lenders: Main Street Launch, LiftFund, Empire State

Crowdfunding

Crowdfunding isn’t exactly lending. It’s more like informal investing.

Crowdfunding has grown in popularity recently, and it tends to change quickly. Right now you can seek funding in two main ways:

  • Equity Crowdfunding: A pool of investors online can invest in your business in exchange for equity ownership in your business. This works best when you need a small amount of money and have a strong plan for growth.
  • Rewards Crowdfunding: In this more popular model of crowdfunding, people donate money to your business online in exchange for rewards, such as the products or services your business plans to provide. Again, you’ll need a compelling business pitch to attract investors who see a lot of business plans.

Leading providers: Kickstarter, Indiegogo, Patreon

Personal Loans

Your new business may not have the track record banks require to issue loans, but a personal loan can generate the money your business needs if you have a strong credit history.

New business owners who believe in their idea and its potential for success are often willing to take out a second mortgage, a home equity line of credit, an unsecured personal loan, or even personal credit cards.

Naturally, this can lead to terrible personal financial turmoil if your business fails.

Check our list of the best personal loan companies.

Leveraging your retirement: Similarly, some new business owners turn to their retirement funds through a rollover as business startup (ROBS) program. You’d incur high fees and risk losing your retirement funds, but you shouldn’t have to pay income taxes on the withdrawals.

Apply for a personal loan with Prosper>>

Business Credit Cards

A new business owner could create some liquidity with a business credit card, which works like a regular credit card.

You’ll need to qualify with your personal credit score and you’ll face high interest charges, but you’ll also have an unsecured source of money for office supplies, utilities, or travel expenses.

This isn’t a long-term solution, but it can buy you some time until you get a revenue stream going.

Help from Friends or Family

Many budding entrepreneurs turn to friends and family members as a source of startup money.

If you have friends, siblings, parents, or in-laws who believe in your idea, they may be willing to extend your financing.

Depending on your benefactors’ preferences, you could treat the investment as a loan you’d repay, as an equity investment in your business, or as a gift.

Business Grants

It’s a long shot, but some businesses have gotten their start with help from free money, also known as grants.

The application process can be strenuous, and receiving a grant may come with oversight from the benefactor.

But if you qualify, a grant could offer some capital to help get your business off the ground.

Entrepreneurs who are women or veterans can often find grant programs designed specifically to help them get started.

Deciding Which Lender is Right For You

An existing business owner seeking a loan usually knows how to shop for the best terms, which include:

  • Interest Rates: Borrowers accustomed only to personal finance are often surprised at the high interest rates some business loans charge. Of course you’ll want to look for the best rate in the market, especially since several programs approach 100 percent interest on some loans.
  • Payback Terms: Before finalizing a loan, consider how the payback terms will impact your cash flow down the line. If your business struggles to repay, the loan can do more harm than good. An SBA-backed loan usually can help unlock more favorable, longer terms, up to 25 years in some cases.
  • Collateral Decisions: If you can put up business-owned collateral rather than personal property, do so. A failed business would be a bigger problem if it compromised your personal property.
  • Credit Score: For many small business loan programs, your personal credit score as a business owner can impact your loan’s terms. Paying your personal bills on time and keeping your debt under control can help your business.
  • The Right Program: Make sure you’re applying for the right kind of loan. Using a term loan to solve cash flow problems can make your problem worse if you experience the same cash shortage a year from now. Instead, look into invoice factoring or invoice financing.

Should You Borrow?

Business owners don’t always consider whether they should borrow money in the first place.

If you could generate the money you need by selling unneeded property or waiting a few months to build up the capital, consider skipping the loan altogether.

Timing is everything in business, though.

If you need to expand to unlock new potential for growth or maintain your existing client base, the right business loan can provide the capital you need.

Bottom Line: Business Loans Are Serious Business

A lot of people, when exploring business startup costs, believe a bank will readily get behind their business plan with a sizable loan.

In reality, startups aren’t likely to find much help through traditional business loans.

Instead, they should look for alternative sources of funding such as micro lending, grants, and investments from friends, partners, or family members.

If you can get through the first year in business, opportunities for more serious funding can become available: term loans, SBA loans, equipment loans, lines of credit.

At that point, you’ll have many more choices to help you break through to a higher level of earning, independence, and growth.

Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Business Loans | Guide To Small Business Loans
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
Subscribe
Connect with
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of

I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree

0 Comments
Inline Feedbacks
View all comments

Primary Sidebar

Robert Farrington will teach you how to get out of student loan debt and how to start investing.

Hi! My Name is

America's Millennial Money Expert

Welcome to The College Investor. We're here to help you escape student loan debt so you can start investing and building wealth for the future

Our expert guides, reviews, and more are designed to help you achieve your financial goals.

Want to learn more? See what's in my wallet.

As Featured In

Social Media

Popular Posts

Side Hustling

53 Side Hustle Ideas To Make Money Fast

Best Side Hustles

20 Best Side Hustles You Can Start Earning With In 2023

Crazy Ways To Make $10,000

10 Crazy Ways To Make $10,000 You’ve Never Heard Of

Make $50,000 Per Year

3 Ways To Make $50,000 Per Year Without Working With Passive Income

Student Loan Scams

Top Student Loan Scams

Net Worth of Millennials

Average Net Worth Of Millennials By Age

Ways To Get Student Loan Forgiveness

Student Loan Forgiveness Programs (The Complete List)

529 Plan By Age

How Much Should You Have In A 529 Plan By Age

Passive Income Ideas

40 Passive Income Ideas You Can Use To Build Wealth In 2023

Make Money From Home

80 Ways To Make Money From Home In 2023

Ultimate Guides

529 Plan Guide

529 Plans: The Ultimate Guide To College Savings Plans

Student Loans and Financial Aid By State

Student Loan And Financial Aid Programs By State

Student Loan Advice

The Definitive Guide To Student Loan Debt

Student Loan Forgiveness By State

The Full List Of Student Loan Forgiveness Programs By State

newretirement

How to Start Saving Now: The College Graduate’s Guide to Saving for Retirement

Latest Research

How much to file taxes

Tax Survey: How Much People Paid To File And The No.1 Tax Software They Used

Inflation survey

Side-Hustles To The Rescue: Survey Shows 86% Stressed About Money & Inflation

students choose to work survey

75% Of Students Would Still Choose To Work Even If They Didn’t Have To

Institutional Merit Grants

Who Gets Institutional Merit Grants At Private Colleges?

Resume Student Loan Payments

Survey: Even With Higher Expenses, Most Student Loan Borrowers Are Ready To Resume Payments

Footer

Who We Are

The College Investor is an independent, advertising-supported financial media publisher, focusing on news, product reviews, and comparisons.

Connect

  • Contact Us
  • Advertise
  • Press & Media

About

  • About
  • Our Team
  • Podcast
  • Editorial Guidelines
  • How We Make Money
  • Archives

Social

Copyright © 2023 · The College Investor · Privacy Policy ·Terms of Service · DO NOT Sell My Personal Information

wpDiscuz