Small business loans provide business owners with the capital they need to start, operate, or grow their business. These loans are offered by banks, credit unions, and online lenders, and typically require an application that includes financial documents, credit history, and a clear explanation of how the funds will be used. Once approved, the lender disburses the loan amount, which the business repays over time through scheduled installments that include both principal and interest.
Loan terms, interest rates, and repayment periods vary depending on the lender and the business’s financial profile. Whether used for purchasing inventory, hiring staff, or expanding operations, small business loans can be a valuable tool for fueling business growth.
Types of Small Business Loans
- Term Loans
How it works: Borrow a lump sum; repay in fixed installments (1–5 years).
Best for: Large investments (equipment, expansion).
Example: A $50,000 loan at 8% interest repaid over 3 years. - SBA Loans
Backed by the U.S. Small Business Administration (lower rates, longer terms).
Popular options: SBA 7(a) loans (up to $5M), SBA microloans (up to $50K).
Best for: Established businesses with strong credit. - Business Lines of Credit
How it works: Access funds up to a limit (like a credit card); pay interest only on what you use.
Best for: Managing cash flow or unexpected expenses. - Equipment Financing
How it works: Loan or lease specifically for equipment (machinery, vehicles, tech).
Collateral: The equipment itself secures the loan. - Invoice Financing
How it works: Borrow against unpaid customer invoices (get ~85% upfront).
Best for: Businesses with long invoice cycles (e.g., contractors). - Merchant Cash Advances (MCAs)
How it works: Get a lump sum in exchange for a % of future sales.
Warning: High fees (effective APR can exceed 100%).
How Do Small Business Loans Actually Work?
Apply for the Loan – Submit an application with your business and financial details.
Get Approved – The lender reviews your credit history, income, and business performance.
Receive the Funds – Once approved, the money is transferred to your business bank account.
Repay in Installments – You repay the loan over time in monthly payments, including interest.
What Lenders Look For
Credit Score – Minimum 600+ (SBA loans: 680+).
Revenue – Most require $50K–$100K+ annual revenue.
Time in Business – Often 1–2+ years (startups may need alternative lenders).
Collateral – Required for larger loans (e.g., real estate, equipment).
Final Thoughts
Getting a small business loan doesn’t have to be confusing. When you understand how it works and prepare well, it can be the boost your business needs to grow and succeed.
Whether you’re launching a startup or scaling your operations small business loans Starting Gate Financial provide the financial fuel to move forward.