Small Business Financing: Know Your Loan Options

Small Business Financing: Know Your Loan Options

There are many options for small businesses in need of loans, and the more familiar you are with the process, the better your chances of qualifying.

Small Business Financing Terms to Know

These common terms are used to discuss and describe loans for small business operations:

  • Principal – The money obtained from a lender
  • Term – The length of time you have to repay a loan
  • Interest rate – A percentage of the loan paid on top of the principal
  • Amortization – Paying back with equal monthly payments and decreasing interest
  • Term loan – Traditional loan with fixed monthly payments over a given time period

Types of SMB Lending

Small business (SMB) lending options include both short- and long-term options. Term loans from banks are the most common. Investment loans come from independent lenders and may provide an alternative if you can’t qualify for a bank loan.

When you need a short-term source of cash, one of these loan options may be a better choice:

  • Line of credit – A revolving loan with a fixed amount you can draw on
  • Factoring – Another company purchases your invoices and collects on them when they become due, giving you money when you need it
  • Merchant cash advance – Small loans paid back using portions of your daily credit card sales

Top SBA Lenders

The Small Business Association (SBA) helps companies obtain loans by guaranteeing part of the amount. This lowers the risk to the lender and helps keep interest rates down.

In 2014, the highest number of SBA loans for small businesses came from:

  • Wells Fargo Bank
  • Live Oak Banking Company
  • U.S. Bank National Association
  • JP Morgan Chase Bank National
  • The Huntington National Bank

Applying for a Loan

When you’re ready to apply for financing, find out what documentation your lender requires. Most will ask for:

  • Personal background information
  • Resume
  • Business plan
  • Personal and business credit reports
  • Income tax returns
  • Bank and financial statements
  • Relevant legal documentation
  • Potential collateral

The Best Option for Financing a Business

The right small business financing for your company depends on your situation and your current financial standing. Traditional loans are best for established businesses with good credit ratings. If you fall short of the qualifications for bank or SBA loans, investment financing could get you the money you need. Merchant cash advances are useful for quick cash if you don’t mind a higher interest rate, and factoring helps companies relying on income from accounts receivable.

Be prepared to explain to any lender the details of why you need a loan, what you’ll use it for, and how it will benefit your business. Having a clear plan builds trust and increases your chances of qualifying.


For those ready to take the step forward and secure capital now, find a lender who fits your needs from one of our most recommended small business loan companies​.

Top 5 Business Loan Companies

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