Starting a small business is an exhilarating experience. Indeed, running their own company is the culmination of a lifetime ambition for many first-time business owners. However, operating a new business also requires a great deal of application and hard work. After all, there’s so much more to creating a successful business than opening the doors and turning on a set of neon lights. And one of the most important things to understand about starting a small business is how to finance it. To that end, today we’re going to start with the basics and answer a classic question: how do business loans work?

Anatomy of a Loan

Simply put, a typical small business loan functions similarly to a personal loan you might take out on a house or car payment. Essentially, a loanee (business owner) approaches a lender and requests for a sum of capital to make payments, complete a project, settle a debt, etc. From there, a lender can either accept or deny a loan application based on the applicant’s prior credit (both business and personal), the nature of their industry, and the effectiveness of their business model. At the end of the process, lenders assign an interest rate to the loan so they can make a profit from the loan repayments. In addition, a lender may also require the loanee to supply collateral in case the loanee defaults on their payments.

What to Look for in a Business Loan

To understand the value of a business loan, you need to consider it in context and on its own terms. But in general, it’s best to try and secure loans with low interest rates and that allow for repayment over a long period of time. Makes sense right? That’s why SBA loans are such valuable commodities. The US government subsidizes SBA loans –– so lenders who are approved to give out SBA loans are guaranteed a portion of their money back, even if the loanee fails to make payments. However, sometimes the most valuable aspect of a small business loan is the speed at which you can use it. For instances when your business needs capital quick, note that there are fast business loans available within 24 hours of application.

Varieties of Business Loans

Business loans are as diverse as companies themselves. For instance: equipment financing is fantastic way for construction companies to get access to necessary machinery to complete a project. And merchant cash advances can help restaurants or other sales-based businesses navigate lean months with low sales. Plus, you can always apply for a business line of credit if you’re looking to increase your cash flow over a short period. The truth is, whatever industry you ply your trade in, there’s likely to be an option that works specifically for you.

Consult a Professional

There’s no need to feel overwhelmed by the number of small business loans available to you. That’s because if you’re unsure about what works best for your company, you can always contact the National Business Capital team. We’ll work to help you secure vital finances –– even if you’ve been rejected by the bank. And for more information on how to land the capital you need without going to the bank, download our free eBook here: