Pros and Cons of Small Business Loans: Steady Growth

We live in complicated economic times. It’s never been easy to own or manage your own business, but the past several years have certainly added wrinkles most of us never anticipated. Then again, you didn’t get where you are by playing things too safe. Small business owners understand perhaps better than anyone the need to weigh their options, consider the possibilities, and the plow ahead. Maybe that means consolidating. Maybe it means expanding. Maybe it requires evolving in some way. Whatever your decision, funding is always a consideration. Is it time to dial back, or invest more in your business? Just what are the pros and cons of small business loans at the moment?

That’s what we’re going to consider today. Some of what we’ll talk about may be familiar to you already. Other considerations may not have crossed your mind. Our goal isn’t to decide for you what you need to do – it’s to help you think through your options more clearly, despite all the noise and distractions. We could all use a little more of that these days, don’t you think?

Let’s start off by clarifying what we’re talking about when we discuss small business loans.

Small Business Loan Basics

In general, small business loans allow you to expand your business, survive seasonal fluctuations, update your technology, or otherwise push your business forward without exhausting your company savings or exposing yourself to unnecessary personal risk. A small business loan essentially offers your operation flexibility and resources beyond what it can manage in isolation.

When things go well, your business benefits from the opportunity and the lender makes a reasonable return on its investment. If things go poorly, however, you may end up with your business weighed down by debt that didn’t accomplish what you’d hoped.

There are several varieties of small business loans. Which one makes the most sense for you depends on your business and your current situation.

Traditional Term Loans

This is the type of loan most of us think of anytime the issue is considered. A financial institution like a bank, credit union, or online lender loans you a lump sum based on your needs, credit history, and ability to repay. Sometimes collateral is required; other times it’s not. You repay the loan in predetermined monthly installments for a set period of time. Interest rates are traditionally fixed for this sort of loan, but adjustable rates might be considered in some cases.

The advantage to this sort of loan is that you acquire the full amount up front and can largely spend it however you think best for your business. A traditional term loan can offer great flexibility and, with the right terms, make it easier to accomplish your small business goals. In addition to local banks or credit unions, many online lenders specialize in offering very competitive terms on relatively small, short-term small business loans.

Potential disadvantages are largely determined by your credit history, either personally or as a business. Unless you’re able to secure a reasonable interest rate and favorable repayment terms, you risk putting your small business into debt for more than you gain from whatever you do with the loan. You’re also committing yourself to regular monthly payments for an extended period, whether business is great that month or not. The larger the loan or the longer the repayment period, the better credit is typically required. 

SBA Loans

These are term loans backed by the Small Business Administration. They’re logistically similar to traditional term loans, but with a few important distinctions.

The biggest advantage of an SBA loan is that because they’re guaranteed by the federal government, these loans often offer better rates and similar or slightly lower fees than non-guaranteed loans. On the other hand, SBA loans are sometimes a bit harder to qualify for. Because you’re going through a government institution, there may be a bit more paperwork and additional requirements before approval.

Don’t assume you won’t qualify based on your business history or recent credit problems. The only way to be certain you won’t get an SBA loan is not to try.


These loans are a subcategory of SBA loans in some way and they are given to newly established start-ups or small businesses, including non-for-profit childcare centers. SBA makes the fund available to nonprofit community-based lender up to a maximum of $50,000 per borrower. However, the average loan size is substantially lower at $13,000. 

Microloans can be particularly beneficial if you’re a veteran or you can claim membership in any category other than the traditional “straight white male” small business owner. We can argue the politics of it some other time; for now, it’s a wonderful opportunity for traditionally underrepresented entrepreneurs to kickstart their vision.

Even if you are a straight white man, it could very well be worth looking into the Microloan program anyway. There are all sorts of factors which might mean you qualify.

Line of Credit Loans

These loans operate in many ways like a credit card for your business. (In fact, many small businesses choose to utilize a company credit card to accomplish the same thing.) The application process is similar to any other small business loan, but once approved, you only withdraw the amount you need at that moment. You can spend as much or as little of the total available in whatever way you like as long as you make the required minimum payment each month.

The major advantage of a line of credit loan (or small business credit card) is that you’re not paying interest on the money you haven’t spent yet. You don’t have to do everything at once to make effective use of your line of credit – you can pay as you go. Repayment is based on the total amount utilized so that monthly obligations can be managed through the strategic timing of your spending. Unlike a traditional loan, every time you make a payment lowering your balance, those funds become available for you to borrow again as needed.  

The potential disadvantage is one familiar to any credit card user. Unless you pay attention and avoid letting your balance swell month after month, it’s easy to spend more than absolutely necessary and to let your balance and monthly interest payments pile up. It’s often harder to qualify for a line of credit loan than for a more traditional small business loan, but thanks to the proliferation of online lenders, this is no longer as true as it used to be. Interest rates largely depend on your credit history, but as you continue to meet your repayment obligations, you put yourself in a position to secure better and better terms.

The 9 Best Business Lines of Credit to Consider

We researched and found the best business lines of credit out there. Here are all the details.

Equipment Loans

If you’re looking to expand your business via the purchase of new or better technology or equipment, this may be the loan for you. When considering the pros and cons of small business loans, the two most common issues that come up over and over are qualifying for the loan and securing decent terms. An equipment loan improves your position in both categories.

The advantage to an equipment loan is that it includes natural collateral for the loan – the equipment being purchased. Because the value of your purchase is presumably pretty close to the amount borrowed, lenders have greater protection in the event you default on your payments or otherwise prove unable to pay. Much like an auto loan or home mortgage, your personal and business credit history certainly matter, but they’re not all the lender has to go on when considering your application.

The downside, of course, is that if you default on repayment for any reason, the lender could seize equipment essential to the operation of your business. Any business expansion assumes the resulting growth will offset expansion costs relatively quickly. If it does not, you may be left paying for expensive equipment or other materials which haven’t had the impact you’d hoped on your bottom line.

Merchant Cash Advance (MCA)

This is a short-term option which relies primarily on your business’s cash flow. Lenders offer small, short-term advances in exchange for direct access to a set percentage of your revenues. Repayment is deducted from your account automatically based on an agreed-upon formula.

On the one hand, merchant cash advance offers great flexibility and convenience for your small business when you know money will be coming in soon, but you need the cash now. Because repayment is based on a percentage of your revenue, you repay more when times are good and your obligation decreases during slow periods. You’re less likely to end up owing a large monthly installment when business has been unexpectedly slow.

On the other hand, MCAs are typically one of the most expensive forms of financing available. Fees can be high and interest rates reflect the unpredictable nature of the loan. In other words, these can be short-term solutions or seasonal strategies, but you probably don’t want to rely heavily on merchant cash advances over the long haul.

Merchant Cash Advance When Money Today Matters Most

t is helpful if you know all of the options that are available to you before you actually need the money. This article outlines everything you need to know about merchant cash advance (MCA).

Invoice Factoring / Invoice Financing

Both invoice factoring and invoice financing rely on your small business’s outstanding invoices as “assets” or “collateral.”

With factoring, the factor (they’re not officially considered “lenders”) purchases your outstanding invoices at a discount and takes on the responsibility for collecting those balances. You get the cash and they profit only if they secure repayment on their own. The downside is that you’re giving up a sizeable slice of revenue in exchange for rapid access to the funds. Not every customer is thrilled to discover they’ve been “handed off” to what sometimes seems like a collection agency (but isn’t).

Invoice financing, on the other hand, is an actual loan for which repayment is guaranteed by your outstanding invoices. The money currently owed to you by customers becomes security for the loan. As with factoring, however, you tend to sacrifice a higher percentage of your revenue in order to get what’s left more quickly. This can give you the pliancy you need to navigate difficult periods, or it can inject increasing instability into your business as you scramble to get back on top of your profits.

Accounts Receivable Financing to Bridge The Short Distance

Accounts receivable financing is a unique type of financing that doesn’t fall under traditional lending. It’s something you should understand when you are considering obtaining money for your business.

Investors / Partnerships

The ideal scenario is for some rich uncle or weird acquaintance from college to hear about your efforts to start your own business and offer you a blank check to get in on the action. These “angel investors” provide working capital with minimal interference in exchange for a reasonable return when and if you become wildly successful.

More commonly, you might consider taking on investors or even forming a partnership in order to combine resources. The pros and cons of this have been covered elsewhere, but basically you’re giving up a little (or a lot) control in exchange for better funding.

Kickstarting / Gofunding / Online Campaigns

The 21st century has introduced a wide range of options for pitching your ideas to others and giving them a chance to chip in on your dream. The rules vary from site to site, as do the pros and cons. In general, however, these sorts of sites work best for specific projects or limited goals. They’re not really set up to sustain an ongoing operation in a meaningful way.

Interesting Small Business Statistics:

  • 69 percent of entrepreneurs in the United States start a businesses from home.
  • According to the National Association of Small Business’s 2017 Economic Report, the majority of small businesses surveyed are LLCs (35 percent) followed by S-corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent), and partnerships (2 percent).
  • Out of the 50% of those asked, “What’s the best way to learn more about entrepreneurship?” responded with “Start a company”.


These are challenging times for many people, and for small businesses in particular. But that doesn’t mean it’s not possible to succeed in the face of those challenges. The right financing and effective strategizing can propel you forward while so many others are still trying to figure out how they ended up so far behind.

Goalry has never been about telling you what’s best for you or your business. We prefer to offer insights, tools, and connections to the sorts of financial options which were only available to a handful of insiders a generation ago. The Goalry blogs break down complex financial ideas into easy-to-understand terms with practical examples. The Goalry App makes it easy for you to track your various accounts, categorize your small business spending, evaluate investment options, compare insurance companies, and conveniently navigate dozens of other fiscal decisions all in one central location.

Life is complicated enough without having essential information and tools scattered all over the internet or divided up into countless hiding places. Some are experts in dentistry, others know their chemistry, history, optometry, or podiatry. You may excel at microbrewery, puppetry, or archery. We’re all about goals – hence the name: Goalry.

Whether your goals are, short-term, long term, personal, financial, or whatever else you decide is important to you, we’d like to help you get there. Dreams are wonderful, but steps are what move us towards them. At Goalry, our priority is to help you take more effective control of your personal or small business finances – to get focused and stay organized so that you can better accomplish whatever your goals happen to be. Sometimes that’s weighing the pros and cons of small business loans, other times it might mean evaluating the benefits and risks of refinancing your mortgage or helping you figure out how to start saving for retirement when you’re already worried it’s too late.

Whatever your goals – and whatever’s stopping you from reaching them already – let us help. They may be closer than you think.


Business Loan Basics Spelled Out: Loans 101

In many ways, business loans are very similar to any other sort of loan you might consider. You evaluate your needs, prepare your financial information, and shop for a lender willing to offer terms you consider acceptable. As with any other loan, the better your credit history, the better the terms you’re likely to be offered.

How Do Business Loans Work?

That doesn’t mean, however, that newer or smaller businesses can’t secure reasonable loans to meet their needs. Nor does bad credit in your past automatically disqualify you for all loans. Sometimes, the unique nature of a growing business actually makes it easier to find attractive interest rates or willing lenders. It all comes down to doing your research ahead of time and opening yourself to a variety of business loan options based on your particular business needs.

Let’s look at some business loan basics and talk about the realities of business loan shopping.

Are Business Loans A Good Idea?

Some of them are. Others might be a horrible idea – at least right now. Perhaps a better question would be,

Is a business loan a good idea for me right now?

Do you consistently have more orders than you can fill in a reasonable time? Are there opportunities you should be seizing but which require capital up front beyond what you can immediately access? Be honest with yourself – the line between taking initiative and taking a bath can be a bit blurry in the heat of the moment. If your eyes are open, however, growth is often a very good reason for the right business loan.

Is it time to update technology or add other hardware in order to maintain or increase productivity? It’s usually a bad idea to buy new toys just because they’re shiny and no one else has them yet, but if your business relies on machinery or computing power to succeed, it’s an even worse idea to let your workplace become obsolete.

Can you say with great certainty that the rush is coming and you need to be prepared with the right items or ready to offer the right services when it does? There are plenty of lenders ready to work with you in these sorts of circumstances. It’s a great problem to have!

Even if you could probably “make do” with less for now, sometimes a few small loans you pay back in a timely manner lay the groundwork for larger loans down the road when you really need them. You shouldn’t borrow just to borrow, but when an opportunity arises to build your business and your credit at the same time, it’s certainly worth looking at your options.

If you decide to shop business loans now in order to build business credit, consider starting small. Explore your options through several business loan companies and choose the one which seems right for you. Then, if you’re happy with them (and if they’re happy with you because you make your payments in a timely manner like the awesome business owner you are), you have a relationship established for next time.

On the Other Hand

Taking out loans to make ends meet month after month is not a sound business strategy. If anything, it usually delays the inevitable while making things worse. Chasing the “next big thing” or over-extending yourself or your business for a “sure thing” that your most trusted friends and colleagues warn you not to trust might be a once-in-a-lifetime stroke of entrepreneurial genius. It’s far more likely, however, that it’s simply what it appears to be – a really bad idea of the sort which are usually available if we look for them.

In short, if we’re talking business loan basics, you should start your  business loan search if it will help your business prosper. You should generally not shop business loans as an act of desperation to keep the doors open. Hard truths from hard knocks, my friend.

What Kind of Business Loans Are There?

There are as many varieties of business loans as there are businesses, which is great news for you. Here are some business loan basics about some of the more common types you should recognize as you begin your business loan shopping:

Installment Loans

These come in many varieties under several different names, but essentially these are the most straightforward sorts of loans the average person imagines when first confronting the realities of business financing. Once approved for a specific amount, usually specified for a specific business purpose, you receive the full amount from your choice of business loan companies. Payment amounts and dates are established in advance and interest calculated over the life of the loan.

Installment loans are easy to understand and expectations are clear for both parties. Usually there’s no penalty for early payment, so you can repay part or all of the loan early without penalty. Interest rates vary, but tend to be more favorable the shorter the payback period – and of course you save even more on interest if you’re able to pay ahead of schedule.

Line-of-Credit Loans

A line-of-credit loan is one of the most common and most useful for small business owners. It can be a short-term or long-term business loan  (depending on if you keep paying it off and reusing it) that allows you to access additional funds as needed up to a predetermined limit. You only pay interest on the amount you use according to terms specified beforehand. (Usually this means monthly payments until paid in full.) At the end of the contract year, the line-of-credit is re-evaluated and – if all has gone well – usually renewed for another year.

Interest rates tend to be modest for these sorts of loans, as they’re relatively low-risk for lenders. If you’re just starting out, or looking to establish or rebuild credit for your business, a small line-of-credit loan might be a great place to start.

Revolving Credit

These are similar to line-of-credit loans, but are more easily compared to credit cards. Your business may access funds as needed up to a predetermined limit, but as you pay back borrowed funds, your available balance essentially “refills”. Interest rates tend to be a bit higher than with line-of-credit loans, but revolving credit provides greater flexibility over time.

Equipment Loans

This is a specific type of short-term business loan. Equipment loans are similar to installment loans or term loans. As the name suggests, however, they’re intended to be used primarily to purchase essential equipment for your business. If you’re still establishing your business credit, these can be a useful type of loan because the equipment you purchase is natural collateral.

I know I don’t need to say it, but entrepreneurs are risk-takers by nature and sometimes our temptations are different than other folk’s. If you take out an equipment loan, you should use it to buy the equipment. Let’s stick to business loan basics and use the money for its intended purpose, yes?

Commercial Real Estate Loans

These are the same basic thing as an equipment loan, only they’re not used for new equipment. You’ll never guess what they are used for. What’s that? You guessed? Hmph. Moving on…

One advantage to commercial real estate loans is that lenders are sometimes more willing to work with new businesses and may even offer better rates. You’re unlikely to sneak off with three acres and a giant metal building in the middle of the night, making this a better risk for business loan companies.

Interim Loans

These are another form of short-term business loan. Typically, an interim loan is used to pay off suppliers or contractors and then repaid once funds become available as a result.

Other Loan Terminology

While they’re not necessarily distinct types of loans, here are some terms with which you should be familiar as you begin shopping for a business loan:

SBA Loans

An SBA loan is any type of borrowing backed up by the Small Business Administration. They’re harder to qualify for than loans from direct lenders, but the terms and interest rates are generally good. Many consider starting with the SBA to be an essential (and obvious) part of business loan basics. You’ve got nothing to lose and you don’t want to have to explain why you didn’t try, right?

Balloon Loans

Picture a large cartoon thermometer laying horizontal instead of vertical. (Put the bubble-butt part to the right.) When you borrow money with a balloon loan, you pay mostly or only on the interest during the life of the loan. That’s the long thin part. Instead of temperature, the numbers are the amounts you’re paying according to whatever schedule you worked out with your lender. At the end of the loan, you pay back the principal in full – as in, one lump sum. That’s the bubble part.

These only make sense if your business expects substantial revenue at some specific point in the future. They offer great leeway in delaying that lump-sum payment at the end. On the other hand, you’re staking a great deal on the arrival of plenty of income before the “balloon payment” is due. Lenders may require some sort of verification as to what that surge of resources might look like before advancing credit for this one.

Secured vs. Unsecured Loans

If your business is relatively new or your credit less than stellar, lenders may require some form of collateral before advancing you a loan. That collateral “secures” the loan. If for some reason you’re unable to make your payments, the lender may at some point take control of your collateral in order to regain some or all of the balance. Here’s a business loan basics tip: make your payments so you don’t lose your collateral.

Once established with a specific lender, it’s much easier to qualify without collateral – an “unsecured” loan. Your reputation and history with the lender are the guarantee, not your house, car, or children.

There are numerous other varieties which your preferred lender will no doubt be happy to discuss with you.

How Do I Qualify For A Business Loan?

The details of qualifying for a business loan will vary widely from lender to lender, but there is one qualification almost every business owner who has successfully borrowed money has in common. They’ve asked to borrow money. (Hey, it’s called “Business Loan Basics” for a reason, kids.)

There are several factors which will determine how easy it will be to get a business loan and which may shape what type of loan you can get at what terms. But whatever your circumstances in relation to each of these factors, none disqualify you from asking. That said, here are the most common factors lenders will consider:

  • Your personal credit history and credit score
  • Your business’s debt-to-income ratio (income vs. “out-go”). This includes current business debt.
  • How long you’ve been in business (2+ years is ideal)
  • The type of business you’re in. (Lenders like industries they understand or which they’ve found to be reliably profitable in the past.)
  • Collateral or other risk-minimizers

Remember: Deciding in advance you don’t qualify and giving up before you’ve started is the only real way to be certain you won’t be getting that loan. Business Loan Basics: Loans 101 – Apply. For. The. Loan.

What Documents Are Required For A Business Loan

This one also varies with the type of lender and the type of loan. Generally speaking, traditional banks will require more documentation than online lenders, but both want to make sure there’s a reasonable chance you’ll be able to repay the loan as scheduled. In many ways, this part of business loan basics is the same as it would be for any sort of loan. Here are a few things you should have ready before you apply:

Name(s) and Address(es)

This one seems obvious, but if you or your business have had multiple addresses over the past decade, it’s a good idea to go ahead and organize those for ready reference. I’m often shocked (and a little embarrassed) at how quickly I forget past ZIP codes or even what year I lived where. Save yourself some stress and record this info somewhere now so that you can easily access it as needed.

You should also be prepared with identification for both yourself and your business. In the same way we’re often asked to present a driver’s license or other ID to confirm we’re who we think we are, lenders usually want to confirm that your business is documented as well. This can be done through your Articles of Incorporation, franchise agreements, or contracts with suppliers or others with whom you do business.

Background Info

How long has your business been in operation? Unless you’re well-established and can document several profitable years, what’s your background and what are your qualifications? In short, why should the lender think you can make this work?

Your Personal Credit Report

Unless you’re a well-established business, this will be essential. Bad credit is not necessarily a deal-breaker, but avoid surprises. Check your credit report and know your credit score going in; don’t wait to be asked about it by a potential lender.

At the same time, don’t let bad credit in the past prevent you from moving forward in the present. Spend a little extra time on your business plan (we’ll look at that in a moment) and look at other ways you might present yourself in the best possible light, then go for it. And remember, there’s no need to fudge the truth here – you and your business acumen are good enough as you are. Your ideas are strong. You just need a little working capital to make it all happen. Be your best you, but still you.

Your Business Plan

You should have one of these anyway, but if not, don’t panic. This is the perfect time to create one. A good business plan isn’t just part of business loan basics, it’s part of business basics, period.

In general most lenders will be looking for:

  • The Executive Summary. This is your business plan in the most concise and clear terms. Who are you, where are you, what do you do, and how do you plan on making a reasonable profit by doing it?
  • The Company Description. A more technical breakdown of your logistics and operations. How is your organization structured? What do you produce or provide? What can you document in terms of growth or profits, current or anticipated?
  • Your Products and Services. This zooms in a bit more on what you actual make or do and why you think customers will pay you to make or do it.
  • Organization and Management Team. Who’s responsible for what? What are their qualifications or experiences? What’s the leadership structure? (In other words, who answers to who?
  • Market Research. Now that we know what you make or do, what makes you believe people will pay you to make or do it? Don’t count on anecdotes or your personal impressions; it’s time to bust out some actual charts, tables, and projections. These are even better if they’re based on something legit.
  • Strategy and Implementation. How are you going to make it all happen? This includes location, marketing, pricing, hiring, etc. There aren’t always right or wrong answers, but you should sound like you’ve researched a bit and have a plan. Ideally, you actually do.
  • Financial Projections. This should start with any existing financial statistics. What’s your forecast for the upcoming six months? Twelve months? Thirty-six months? On what are these projections based?

This is not the most fun or exciting part of owning your own business, but it’s one of the most important whether you business loan shop or not. Entrepreneurs are valuable because we reach and dream and risk; that makes it all the more important than we discipline ourselves to remain anchored in reason and reality. A detailed business plan is one critical way to do that.

Other Financial Paperwork for Your Business

If you’re not just starting up, your business has a credit report separate from your personal credit report. You can check this through various online services such as Experian or FICO.

Some lenders will also ask questions about or require copies of your personal and business tax returns for the previous three years. They may ask for documentation supporting your financial projections or going into more detail about the information in your business plan. They may even request your bank statements. The details vary from lender to lender, but it wouldn’t hurt to have this information available and organized ahead of time.

Have I mentioned that being prepared and organized ahead of time are absolute business loan basics? I have? OK, just checking. Because they are.

What Can A Business Loan Be Used For?

There are no set rules on how you use your loan, although some lenders may require you to share this information as part of their business loan application process. Some types of loans, as we covered above, are intended for specific purposes, and you shouldn’t be surprised if the lender requires some evidence they’ve been used appropriately.

Generally, though, business loans can be used for whatever your business requires.

  • Expansion – Maybe you need more room or storage. That’s a good problem to have.
  • Upgrades – It might be time for better equipment or new technology. You might even replace that dot matrix printer that requires that special paper with the tear-off strips down the side. *shudder*
  • Inventory – You can’t sell what you don’t have, and you can’t use what you haven’t ordered. This is classic “you gotta spend money to make money” territory.
  • Salaries or Bonuses – Human resources are often the largest expense of any business, especially when it’s growing. Be careful with this one, though. You should only borrow money to pay people if you have a clear plan forward. If you’re borrowing to meet payroll every few months, something is seriously wrong.
  • Special Events – Congratulations on a great year! Great work, team! Drinks for everybody! Again, it’s up to you how you spend your borrowed funds, but only do this if you know the funds are coming soon and reliably. It’s only a great party if it doesn’t bankrupt the company, kids.

Small Business Loan Shopping

Now that you know your business loan basics and have an idea of what sorts of loans are out there, let’s talk about taking action, shall we?

How Can I Get A First-Time Business Loan?

Start by revisiting the requirements above. No matter where you’re seeking your startup business loan, you should begin the process by gathering and organizing your information. Update your business plan and revisit your plans for using a new loan effectively. Take a moment and talk yourself through anything which might come up. There’s simply no substitute for being prepared.

It might not hurt to remind yourself of why you’re doing this in the first place. You’re an entrepreneur. You offer products and services no one else does, or at least offer them differently or better. Confidence matters. It’s nice when it overflows without effort, but sometimes we have to choose it and embrace it for a while until the flow kicks in again. Don’t get cocky, of course – but believe in what you’re doing.

Otherwise, why should anyone else?

Where To Business Loan Shop

It never hurts to start with traditional sources – local banks, credit unions, etc. In the 21st century, however, more and more people are working with online lenders. The best approach is to explore your options. Visit some brick-and-mortar financial institutions in your area, then spend some time looking into online alternatives.

As you may have suspected by now, we can help you with that part. Loanry simply gathers some guiding business loan finder information from you, then connects you with lenders who work with you to discuss business loan options.

Please understand that we’re not selling anything. There’s no surprise on Step 17 asking for your credit card and no ‘free trial period’ that suddenly turns expensive once you’ve forgotten all about it in a few months. In short, we’re not asking for anything from you on this one. We connect potential customers with experienced lenders – the rest is between you and them.

Obviously we want for you end up happy and tell everyone about it. Not to brag, but we’re pretty good at this sort of thing, so that happens a lot. We’re all about business loan basics, auto loan basics, medical loan basics, and a variety of other services as well. Because in the end, it’s not just about the money. It’s not even just about the business. It’s about helping people get from where they are to where they believe they can be.


Long-Term Business Loans: Choices Explained

Long term business loans are financial debts that you pay back over an extended time frame. They mostly provide capital for businesses to run and buy assets. They also come in handy for inventory, and equipment as well as build up more income to run the business.

A long-term business loan is a loan that you can take from your bank, your credit union or your online lender. They are responsible for the determination of your loan limit, interest rates, and the term of the loan. To get a long-term personal loan, your lender first analyses your financial history. This includes your income, past debts, and your credit score. Then they determine the terms and conditions of the loan.

There are many lenders today. So you need to be careful when want to get personal loan online  for your long-term business loan. In order to identify the most reliable and effective lenders, the Loanry comes into play to help you with Long-term business loan shopping.

Long-Term Business Loans 101

People take up long-term business loans for various reasons. There is no definite use of a long-term business loan. Because the terms of the loan do not include its usage. As such, you can take up a long-term business loan to do anything depending on your current and long-term needs. These types of loans are mostly effective if you want to invest in the growth of your business in a long-term.

If your business needs more personnel, if you need to expand your product line or if you need to open up a new branch in a new location then you need a long-term business loan. A long-term financing is a good way to expand your business and it provides your business with a huge opportunity to grow.

A long-term business loan can be taken up to any amount depending on the lender you are working with and on your business interests. Traditional institutions such as banks do not lend small long-term loans but online lenders do. If you want to take a business loan for a small amount then it is advisable to use a business lender finder service to help you get a reliable lender in the online lenders market.

Lenders Offer Different Things

Different lenders offer different loan amounts so it is important to do thorough research before settling for a business loan lender. Processing of loans can be a big task and it requires a lot of time and official identification as well as paperwork. As such, it is easier for banks and other traditional financial lenders to process loans for huge amounts of money than for small amounts.  This leaves banks with a preference of $250,000 minimum for long-term business loans.

Despite the fact that long-term business loans have low-interest charges, they are not cheap. As such, it is crucial to be very choosy on how you spend your loan to avoid a situation where you are unable to repay the loan. A business loan should be used on a project that is profitable and one that does not risk failing. These loans are right for major investments for your small business. You can use the loan for the renovation of your business premises, opening up a new location for your business, expansion of the business, refinancing an existing budget, expansion of your product offering, and also a major assets purchase. This means you should use such a loan for only big investments.

Two businessmen in the office.

Repayment of Long-Term Business Loans vs Short-Term Business Loans

The advantage of taking a long-term business loan in comparison to a short-term business loan is that there is no pressure repaying it. Short-term loans require to be paid back in daily, weekly and monthly installments. This puts a lot of pressure on small business owners. Long-term business loans on the other hand are mostly paid in monthly installments over a period of years. This minimizes the pressure on business owners. Between one to twenty-five years, you can repay your long-term business loan. This depends on the terms of the lender you took the loan from. A short-term business loan on the other hand must be rapid in three to eighteen months which isn’t enough time for a business to have picked up pace.

The repayment of a long-term business loan is stretched out over a long period of time. While the short-term loan is over a very short period of time. The entire loan amount for long-term business loans and the accumulated interest is paid over a time frame that is very manageable and that does not strain the business in any way. A short-term business loan can really cut into a business’ cash flow. Especially because the deductions are made on daily, weekly and monthly basis which is not the case for long-term business loans. Each repayment for the latter is like a small amount of cash which is manageable.

Different Lenders Carry Different Interest Rates

The type of interest rate also affects the repayment of a long-term business loan. There are fixed interest rate and variable rates. Traditional financial lending institutions have variable interest rates that vary based on the financial market. Online business loan lenders on the other hand offer fixed interest rates for their loans which does not affect the monthly repayments of the loan like variable interest rates do. The monthly payments of the loan are the same for fixed rate loans which makes this a better option especially for small business owners.

Loan Purpose

Another factor that determines the repayment of the loan is the purpose you are using it for. Purchase of real estate to put up a business, loans for working capital or general business expansion requires a long-term loan which can be quite stressful to repay if you don’t have the necessary income. As such, it is important to take up a loan that does not put pressure on you to repay and use the loan on a project that is going to give back as much as or more than you spend on it.

The repayment of any type of loan is highly determined by the interest rates offered by the lender. Depending on the lender you are working with and the term of the loan, the interest rates of the loan vary. Long-term business loans are the most affordable financial options for businesses. This is because their interest rates range between 4% to 30%. Short-term business loans on the other hand have interest rates ranging from between 9% all the way to 80% which is very strenuous on the business and very costly.

These exorbitant interest rates are what make long-term business loans preferable to short-term business loans especially for business purposes.

Getting a Long-Term Business Loan

Most lenders are very reluctant to give long-term loans to borrowers. This is because these loans are a long-term commitment and a partnership between the two parties for a very long time. As such, people who qualify for them get long-term business loans. Some of the things that they consider when getting a long-term business loan include the nature of the business the borrower is running, a strong personal credit and strong business finances.

In order to get a long-term business loan, your credit must be over 700. This means that if your credit is below that then you only qualify for a short-term business loan. Your business must be profitable also to ensure you can sustain it, manage it, keep it running and pay the loan at the same time without incurring debts and losses. These conditions however apply to traditional financial lending institutions mostly. Online lenders can give loans to young businesses which do not have as much accumulated profit yet and to borrowers who are less credit-worthy.

The risk profile of long-term lending is very low because these loans are given to the most qualified borrowers. The level of default for long-term personal loans is also very low which minimizes the risk of losing their money to defaulters as compared to short-term loans which have a relatively high risk of default.


of business owners in America borrowed funds for their business from spouse/other family or friends.

Where to Get a Long-Term Business Loan From

There are many financial lending institutions today, both traditional and modern. As such, you can decide who to get your loan from depending on your preference and also on the amount of loan you need.

Banks and online lenders both offer long-term loans but with very different terms and conditions. Nationwide banks and community banks are traditional institutions from which you can get such a loan. They have been the main providers of long-term installment loans for a very long period of time before online lenders came into play.

When getting a business loan, bank loans are the most difficult to qualify for. Approval from banks is never a guarantee especially if you have bad credit, if you are a small business owner, a self-starter of if you don’t have collateral to back the loan. On the upside, if you qualify for a bank loan then you may see lower rates.

If you do not qualify for a long-term business loan from the bank then consult Loanry to aid you in finding an online lender.  Despite the fact that the interest rates for online lenders can be very high, these loans are not as difficult to get. You don’t have to meet a lot of requirements to qualify for a long-term personal loan from an online lender. Online lenders lend money to borrowers with bad credit, small business owners, self-starters for business and all other borrowers who don’t qualify for bank loans for any reason whatsoever.

Best Lenders for Business Loans

There are specific lenders who offer long-term business loans today. The Wells Fargo, SBA and online lenders are some of these lenders who guarantee a long-term business loan for clients.

These loans are mostly for businesses purposes. The local community banks are among the lenders who offer long-term loans today. The local banks understand the condition of local businesses. This makes it easy for them to underwrite loans for people living in their localities. The trust accorded by local bankers when giving business loans to locals is important. It ensures friendly terms and conditions and a good partnership during the term of the loan repayment.

A bank where you have an account or your mortgage is also a good place to get a long-term personal loan. This is because of your familiarity with the bank; you know your bank given you may be an existing customer already. This makes it easier for the bank to extend its services to you. Small business friendly local banks such as Wells Fargo offer both short-term and long-term personal loans.

Banks offer these types of loans for long-term financing. The term small business means that the loan is for business purposes, meaning that the bank will get its money back incase the borrower defaults because the business acts as a guarantee. Small Business Administration loans makes the bank a little more comfortable when underwriting a loan compared to when you apply for a direct long-term loan with no business involved.

The government guarantees the repayment of these loans which makes them easier to get versus other traditional long-term loans. This loan however has some requirements too. In order to qualify for an SBA loan, your business must be profitable. You must also ascertain that you are a top-notch borrower. You can still qualify for an SBA microloan. Even if you are starting a business and it is not very profitable yet. However, the business must show signs of future profitability.

There are different SBA lenders including traditional banking institutions and a few online lenders such as SmartBiz. The lenders who offer SBA long-term loans are such as Wells Fargo, Huntington, National Bank and Live Oak.

These are the most used lenders for business loans. This is because their loans are very easy to qualify for. Most of them do not require collateral which is a big limitation especially for small businesses. Online lending is not cumbersome, it does not require a lot of paperwork and documentation. These loans have easier approval criteria, they don’t take long like bank loans.

When applying to get a business loan online, you need to do thorough research to avoid getting an unreliable lender. The lenders listed on are online lenders. They operate under a code of conduct that ensures professionalism and fairness between the lender and the borrower. Among the online lenders who offer online long-term business loans are the Lending Club, the Foundation and the Funding Circle all of who have different rates, terms and conditions for their loans.

Application for a Long-Term Business Loan

Long-term business loans are the hardest to qualify for. This is because the level of competition is very high. When applying for such a loan you need to be ready to avoid frustrations and distresses in case there is a lot of procedure. Application of this loan form banking institutions entails a lot of paperwork. The condition of your business and your personal finances are issues of great concern. The bank looks into this before it underwrites the loan for you.

When applying for a long-term loan from the bank, it is important to submit a complete business loan application to increase the chances of qualifying. When writing a business loan application, you need to include the following;

Documentation Needed

Your bank statements. Lenders use these to see how well you can manage the cash flow into your business.

You can use balance sheets show that your business is in good standing and to generally show the lender how your business functions.

Credit rating is used to show the lender how reliable you are with your financials and with your business. The more reliable you are the higher the chances of being approved for a loan.

Some lenders require Personal tax returns to verify other sources of income to determine the overall net worth of your business and the collateral.

Lender uses your time in business to verify how long your business has been running.  It is not easy for a new business to be approved for a long-term loan because the risk is too high. The longer you have been in business the higher the chances of getting approval for a long-term business loan.  Small businesses are riskier and so harder to lend compared to long-term established businesses.

Business Loans May Require Tax Returns

Business tax returns show how responsible you are with your business finances. A responsible person has a high chance of getting this loan because the responsibility reflects they are running the business smoothly.

Lenders use profit and loss statements are used to show where your money comes from and how you spend it. The statements also show how you manage your finances to ensure that you will not mismanage the loan and end up as a defaulter.

When writing a business loan application, there may be other additional documentation that the lender might request for such as business licenses, permits, approvals, collateral documentation, your cash flow forecast, business debt schedule, the type of industry you are running and the exact use of the loan you are applying for.

Online lenders are a little less extensive when it comes to application for long-term loans. They mostly use technology in the processing and underwriting of loans. The documentation is insight to know if you are a reliable borrower and it also gauges your eligibility for a long-term commitment.

Collateral Requirements for Business Loans

Like any other type of loan, business loans also may need collateral. Long-term loans are generally a little less expensive than other forms of business loans for this reason. Most of these loans are secured by the borrower’s collateral. The collateral is usually an asset that is valuable such as the borrower’s home, a personal savings account or commercial real estate.

They may use collateral for security of the loan. It is a way for the lender to show that they have accepted less risk when underwriting the loan for you. In case you default on your payments, the lender has the right to seize your assets and recoup their losses through the collateral you had initially signed for them.

In case you don’t have any form of collateral to offer, you can still get a long-term business loan. The banks may not give you one but online lenders will. There are some online lenders who give these loans without asking for any collateral upfront. All these lenders require is a personal guarantee from the borrowers after evaluating the business assets to determine their value versus that of the loan.


Should You Use a Personal Loan to Start a Business?

Using a personal loan to start a business is a choice a lot of entrepreneurs make. Most personal loans do not restrict you from using the money for business expenses. Because of this, you can apply for a personal loan and use that money to support your business.

Should You Use a Personal Loan for Your Business?

There are many pros and cons to consider when deciding whether you should use a personal loan to start a business or pay business expenses. Kat Tretina of Student Loan Hero discussed six factors that occurred to her, including how fast the loan is approved and what information lenders require when loaning money for personal and business loans.

Upsides of Using a Personal Loan for Your Business?

I’ve put together a list of benefits and drawbacks to using a personal loan to start a business. These were important to me when I was deciding whether to take out a personal loan to start a business. You should make sure you weigh the costs and benefits that are important to you and relevant to your business.


Applying and qualifying for a personal loan can be easier than getting a business loan, especially if your business is new. You can even find a lender to get a personal loan for business online relatively easily.

For a personal loan, the lender considers your personal credit history, income, and overall creditworthiness. When you apply for a business loan, you usually have to give the lender detailed business tax returns, financial history, and other documentation that can take a lot of time to put together.

Interest Rates May be Lower

Your personal credit history is often more favorable than your business’s history. You have probably been around borrowing money and paying it back a lot longer than your business has been in existence. That history may help you qualify for a personal loan that has better terms than a new business can obtain.

The word rates on dollar usa background.

Getting a Personal Loan May be Faster

Because business loans require a detailed examination of the business financials, they take time to process. One of the most popular business loans is the Small Business Administration (SBA) loan, and it can take months for that loan to be approved. A personal loan is granted based on information that is easier for lenders to process. You may be able to get a personal loan to start a business in just a few days.

Downside of Using a Personal Loan for Your Business?

If a personal loan is easier, cheaper, and faster, why would anyone get a business loan? There are actually some great reasons why a business loan is right for some people. There are important downsides to consider when using a personal loan to start a business.

You Have to Pay Back a Personal Loan if the Business can’t

One of the things that makes it easier to get a personal loan than a business loan is that when you get a personal loan, your own credit is on the line. With a personal loan, you are personally responsible for paying back the individual loan. It doesn’t matter if the business closes—you are responsible for the entire loan amount. If your business doesn’t make enough money to support the loan repayments, it’s your credit score that will suffer.

May Limit Your Ability to Borrow for a House or a Car Later

Every loan you take out makes it more difficult to get the next one. Lenders use a debt-to-income ratio, basically the more debt you have compared to the amount of money coming in the harder it is to get a loan. Whether it’s for your business or not, a personal loan is a debt that can make it harder to get a mortgage or car loan later on.

Personal Loans Amounts are Usually Smaller than Business Loans

Even a personal loan with good credit usually will be smaller than business loans. You may have to use a business loan if you need to borrow a lot of money for your business. SMB loans can be approved for millions of dollars while personal loans may only be for thousands.  If you think about it, this makes sense. One person is limited in the amount they can pay back by their salary. Businesses’ profits are theoretically limitless and can be based on the work of more than one person.

Ways to Use a Personal Loan to Fund Your Startup?

When I was starting my business, I tried to operate on a shoestring budget and only spend money that I took in. This didn’t get me very far, because it meant that I didn’t actually invest in my own business. I quickly realized that at some point every business needs cash. My little venture was no different.

Where was I going to get funds to invest in my next great idea? I knew I needed a loan, but I didn’t actually know how much money I needed. Before I decided whether to get a personal loan or a business one, I thought about all the ways that a little extra money would help me reach my business goals.

You may find that getting a small personal loan for startup expenses can jump-start your business and help you reach the next level of success. Every business has different needs, and money is at the center of almost all of them. Here are some ways I found that you can use the money from a personal loan to start a business.


It’s hard to make money selling stuff if you don’t have anything to sell. Inventory is a significant expense in any business, especially when you’re paying the manufacturing costs yourself. That’s why crowdfunding sites are filled with new businesses promising extensive discounts to people who pledge to give money before goods are produced. Use a personal loan to finance your next production run, and you can focus on selling your goods on your own terms.

Employee Wages and Contractor Payments

Employees expect to get paid on schedule, even if your last client is late on his bills. A personal loan can help you keep your employees and contractors happy while you wait for your next invoice to be paid.

Office, Warehouse, Furniture, Machinery, and so on

A personal loan can help your business afford that new piece of equipment to improve your product. It can replace the worn carpet in your reception area. Investing in your business can help you see returns in client satisfaction and retention.

Cardboard boxes and furniture near stairs in office.

Cash Flow

You need money to make money. New businesses don’t have a steady stream of customers bringing in money, and business investment suffers because of it. Using a personal loan to start a business can help you improve your cash flow until your business starts generating it on its own.

Rent or Monthly Mortgage Payments

It’s hard to operate a successful business out of your house. Whether you’re just starting out or are in the middle of a seasonal slump, paying your rent is a top priority. You can get a personal loan to keep the doors open so that the business has a chance to flourish.

Advertising, Marketing, and Research

If customers can’t find you, they won’t buy from you. You can use a personal loan to start a business marketing campaign. Research your competition and advertise to the right potential customers.

Poor Credit Loans

Accounting, Legal, and Professional Fees

Licensing requirements, legal fees, and accounting expenses add up in any business.  A small personal loan to start a business can help you finance your legal fees and licenses while you focus on getting your first customers.

Unexpected Business Costs

I first found out that my commercial lease didn’t cover the cost of a new A/C when the A/C went out in the middle of summer. Business expenses pop up at the worst moments, and you can’t plan for everything. Get a personal loan quickly so you can handle your emergency without jeopardizing your business goals.

Is It Better to Get a Personal Loan or Business Loan?

Getting a personal loan to start a business might be your only option. But if you have an established business, you are probably wondering how to weigh the benefits and drawbacks of a business loan. Is a business or a personal loan better for you right now?

I can’t answer that question for you. What was right for my business may be completely different from yours. Your personal expenses, family obligations, and business needs are important considerations when making your decision. Only you can decide which option is right for you and your business.

You have to decide how much risk you are willing to take for yourself, your family, and your business. Tying your personal credit history up with the success of your business has its risks. Take into account the costs of tying up your personal credit and the risk that your credit will be negatively affected if you default on a personal loan. We all hate to consider the possibility that a business will fail, but many do. Getting a personal loan to start a business may sound like a no-brainer, but if the business closes the loan doesn’t go away. You still have to pay for it.

If you risk nothing, then you risk everything.

Geena Davis

Are you going to risk your business because you don’t want to risk your personal credit? Let’s say you decide to try for a business loan. Can your business survive without immediate cash if you’re waiting months for a business loan to be approved?

If you own your business with others, make sure to involve them in any decision you make. Your business agreements may require you to get all members’ approval before taking out a loan in the name of the business.

Where to Find A Personal Loan?

If you have decided to take out a personal loan to start a business or to sustain one, the next step is how to get a loan. Don’t just go to your bank and take the first offer you get. Before you decide to loan shop for your business make sure you get the best deal.

There are many online loan shopping tools that help you find a lender for your needs.  Loanry is a tool that makes looking for loans easy and efficient. Our blog post on the 3 steps to actually getting your loan is really helpful if you’re looking for a personal loan to fund a business.

Where to Find A Business Loan?

If you’re like me, you want to know what all your options are before you make your final decision. Before I decided which loan to get, I wanted to make sure I knew what loan conditions I could qualify for personally and what kind my business would qualify for.

Loanry has lots of information on personal loans and also has information on this page for business loans. Here is some of the information I found when researching how to finance my business. I hope that some of it is useful for you.

A traditional business loan is given by the bank to the business entity, not to the people who run or own the business. The only obligations of the loan are the ones the bank sets up. These obligations can be onerous, and traditional loans can be hard for small businesses to get.

Because traditional business loans are so hard for new companies to get, the Small Business Administration works with small companies and solo entrepreneurs. An SBA-backed loan is an alternative type of loan for a business that may not be able to qualify for a traditional loan. You go through a bank or credit union like a traditional loan, but your business has to meet the requirements of the SBA in order to get the loan.

Whether you want an SBA-backed loan, a traditional business loan, or a personal loan, you can go to any credit union or bank for funding. You don’t have to go to the institution where your business has its checking account. I found out that it would have taken take days just to locate all the credit unions and banks that were offering loans in my area. That’s why an online loan shopping tool is a good idea. It does the legwork for you, so you can get to work deciding which loan to apply for.

If you’re fortunate to have funds in a 401(k) or IRA, you may be able to fund your business with a ROBS plan. The Rollovers as Business Start-UP IRA can be used as a down-payment on an SBA-loan or as a fund to pay yourself a salary. You should definitely consult a financial advisor before making this choice. You may need to change your business structure and move around funds in order to avoid tax penalties.

If you want to avoid traditional lending institutions, you can still get a loan from other sources. Peer to Peer (P2P) loans go from person to person instead of bank to person. There are P2P platforms popping up online that connect people to businesses that need cash, and you may be able to find one that can help you.

If you have equity in your house or other real estate, you may be able to use that equity to get a personal loan. By putting up your house or other property as collateral, you may be able to get a lower interest rate on a personal loan to start a business. A collateral-backed personal loan is a secured loan. There are other types of personal loans available, and one of them may help you give your business the boost it needs.

Final Thoughts

When you consider all your options, you may decide that a personal loan is the best choice for your business right now. Or a business loan may be a perfect solution to expand your company. Compare all of your personal and business loan options, and consider the impact on your business and your personal financial health. I’m sure you’ll be able to make a decision that helps your business thrive. With online tools like Loanry, you have everything you need to find the right loan to meet your current needs and set you up for continued success.