29 Best Answers to Small Business Loan Questions

Here are The Best 29 Answers to Small Business Loan Questions

It is incumbent upon business owners to understand how small business loans work, whether you are a startup, only months in business, or a seasoned company. Knowing how business funding can finance your business and help it grow and expand is critical. There are no little secrets.

You’ll need a lot of capital to get your business off the ground, especially in the first few years. As your business grows and matures, there will be many opportunities to continue expanding your company. 

Becoming a complete success is possible with small business financing. Read below to get the 29 best answers to your business loan questions. If you don’t see your question here, then jump on over to our FAQ page, where you’ll find another 107 questions and answers. Still can’t find what you’re looking for, then reach out to us and ask.

How Do Small Business Loans Work?

Business loans and personal loans are very similar. When you apply for a specific amount of money, lenders determine whether they will lend it to you and at what interest rate.

Once the lender accepts an offer, your loan amount is either ACH’d or wired into your bank account. Accepting their terms means you’ll be required to make regularly scheduled repayments to cover the interest and principal payments for the rest of the loan term. Depending on the lender, these can be daily, weekly, or monthly payments.

Business loans typically range from $5,000 to $500,000 to $2M. The amount you can borrow depends on various factors, including your business’s size and financial health.

Failure to make payments on time may result in default, and you may forfeit your assets as collateral or be penalized for late or missed payments. Consult with your lender if you have challenges making payments, and do this before they file a lien on you or your business. Lenders rather work out a payment plan instead of not receiving any repayment.

Why Are Business Loans Important?

Every business must make and generate a positive cash flow, whether small or large. The key is to have access to cash. The gross monthly or annual revenue must pay all day-to-day operations and expenses; any money that exceeds your revenue minus your expenses is the net profit. 

The monthly or annual profit percentage divided by the monthly or yearly revenue is your “margin” or ROI (return on investment). You need to understand this number to determine the value of a business loan. 

Ideally, you have a good profit margin or, if not, the opportunity to turn the money over quickly throughout the year, enabling you to comfortably repay the loan and increase both revenue and net profit. 

Why Small Business Loans?

Let’s talk a bit about managing day-to-day operations and the company finances. Have you thought about when your internal finances limit your ability to expand your business revenue and keep the operation going? 

Can you do it if there is a fantastic business opportunity that needs an immediate cash advance to buy inventory at a considerable discount or to make a bid to win a job? What happens if there is a business emergency?

These questions all go to this:

How do you finance growth?  

Can you cover an emergency? Can you use your current revenue stream or cash flow when you don’t have enough free cash flow in the bank account? Do you need a unique business loan calculator to help you figure things out (the answer is “no”)?

Suppose you know your numbers and the company’s return on investment. If you don’t know your numbers, call your accountant, or speak to a knowledgeable person to help you with the calculations.

Should I Get Business Loans?

Most business loans are worthwhile if the interest rate is not excessive. Whether or not your business succeeds, you’ll still need a plan in place to exit your business loans. Business loans are not strictly for those with financial challenges or troubles; most times, it’s for a business opportunity.

Truthfully, the answer depends on what you’re going to do with the money and what it will return (also known as your ROI or return on investment).

What happens if you don’t take the money?

This question is the logical extension of the preceding one. If the answer is, “I’ll go out of business,” do you have much of a choice? This realization is when securing a small business loan may make business sense. Assuming, of course, you can repay the loan. Otherwise, you might want to lick your wounds, take your lumps, and shutter the business. 

Where to Get Business Loans?

There are lots of lenders that cater to small to medium-sized businesses. The lending marketplace has many options, including banks, credit unions, government agencies, credit card companies, and other traditional financial institutions, like alternative lenders (also known as online lenders or fintech), all offer business financing. 

These business loan lenders have their way of underwriting the loans, determining the why, how, when, and for whom the credit is extended. We recommend speaking to a loan specialist about the loan option that makes the most sense for you.

What Business Loan Can I Get?

The typical qualifications most, if not all, lenders use, to varying degrees, including the five “C’s” of credit. The “C” s” represents the borrower:

Banks, credit unions, and other traditional lenders require multiple documents to demonstrate your creditworthiness. The average borrower will spend over 24 hours completing all the paperwork and will visit, on average, some four banks before approval. What do you get while the banks are busy reviewing your “C’s,” what do you get? 

The “C” you get by waiting days, weeks, or months is the lost opportunity “Cost.”

Where to Apply for Business Loans?

Online lenders take a different approach. There will be no need for collateral, and these loans are unsecured business loans. You’ll have far more financing options since these lenders have a different application process.

The online lender will take a more generous approach when considering your credit profile. Your credit score can be anywhere from 500 to over 700. Having dinged-up credit means you can still qualify for loan amounts from $10,000 to $2 million if you have a healthy business with substantial revenue. 

Alternative lenders focus on the health of your business, its cash flow, and your business credit. At the same time, there is less emphasis on your personal credit. It would help if you kept current with any debts or liabilities. If you have judgments or liens, small amounts are usually OK, and if you have a larger one, you’ll need proof of a payment plan. Bankruptcies need to be discharged at least for one year. 

We get asked these two questions about your credit score as a follow-up.

Does a Business Loan Affect Personal Credit?

 A variety of factors affect credit scores. Personal guarantees are a common form of collateral for small-business loans. As the owner or partner of the business, this signifies that you have agreed to repay the liability you have incurred. 

As a result, if your company defaults on its debt payments, the lender has the right to take legal action against you personally. Seeing the debt on your credit report as a cosigner is possible because of this arrangement.

It may impact your FICO score when you personally guarantee a business loan. This reporting affects your score if your business relies on personal loans, such as home equity lines of credit.

Does Business Loan Hurt Credit Score?

Most alternative or online lenders initially do a soft credit pull on your credit reports. The soft pull has no negative impact on your credit score or profile. All lenders will pull your credit if you move forward to secure the loan. This inquiry will be a hard credit pull and temporarily impact your credit score. Fortunately, credit inquiries only represent 10% of your credit score and will fall from your report in 6 months.

What are Business Loans Interest Rates?

Getting a small business loan that offers a working capital loan shouldn’t add more to your cost. However, the reality is that online loans are generally more expensive than bank loans.

Why? 

Banks are very picky and will lend only to the most qualified individuals. The businesses they approve must be profitable for at least three years, and the company must demonstrate the ability to repay the loan on time. The owner will pledge assets or collateral for additional security (for the bank). 

So, what happens if you have dinged-up credit as most business owners do), have been in business for a short period, or in the types of business or industry that are perhaps a bit riskier? What happens if you need fast funding, like tomorrow?

Do you think a bank will get you approved within 24 hours and fund you the next day? Sadly, not every lending institution understands your life, and they have not walked in your shoes. Few lenders properly appreciate what it takes to make a business work. If you need a small business loan, pick the perfect loan lender. Often that is the online lender.

What Business Loans Are the Best?

You want to make sure your lender doesn’t inhibit your ability to get working capital. Your company’s growth mustn’t be impeded or controlled by standard orthodox thinking. The right business lender for you will find a way to make a loan happen. 

Banks will zero in on those 5 “C’s.” The forward-thinking business lenders that provide business loan alternatives know there’s a business loan suitable for almost any business. Irrespective of size, type, and organization.

Which Business Loans or Loan Types are Right for You? 

SBA Loan

(Small Business Administration Loans through an SBA lender or SBA preferred lender) The most popular SBA loan program is the 7(a). There are a few eligibility requirements of the SBA. Your business must operate legally as a for-profit company and register with the appropriate authorities obtaining all necessary business licenses.

You can’t be out on parole as the owner of a business. Your company is eligible for consideration if you have less than 500 employees and an annual revenue of under $7.5 million.

Term Loan

A lump sum of money goes to borrowers who agree to a specific repayment schedule when taking out a term loan. The loan term is between six months to five years and up to 10 years with an SBA loan. Loan funding happens when the borrower and the lender agree on a dollar amount, term, and interest rate.

What Are Fast Business Loans?

This is considered a quick business loan whenever a business gets funding within a day or two of approval. If you can get the funding the same day as the approval, that is truly a fast business loan. Generally, these loan amounts are under $100,000. 

The reason is simple—less paperwork. Typically, alternative or online lenders want to see tax returns and possibly other stipulations for amounts more significant than $100 grand. 

The key to a fast business loan is preparation. Complete the application accurately and make sure you provide the three months of business bank statement, including the blank pages. Ensure all the addresses, telephone numbers, and tax ID numbers are accurate. 

Be available by phone immediately after submitting your lead form or application page. Most lenders work on a first-come, first-serve, so when they call out to you and don’t answer, it may take longer before they circle back to call you. If you want fast and easy business loans, this is it.

Equipment Financing or Equipment Loan 

To run an effective and efficient business, you may need a small-business loan specifically to purchase machinery and equipment. The equipment loan is for just about anything from office furniture and medical equipment to farm machinery and commercial ovens.

Business Line of Credit

A business line of credit offers more options than a traditional business loan for small businesses. Using a business credit card is the same as using a credit line. Only the amount of money you borrow is subject to interest, so long as you don’t go over $100,000, the set limit.

Invoice Financing or Customer Invoices

It is possible to borrow money against customer invoices through invoicing financing. Businesses can’t invest in operations and growth as quickly as possible with invoice financing if they must wait for their customers to pay upfront.

Invoice financing is a method of borrowing money based on the money owed to your company based on your customer’s invoices. Unpaid invoices are used instead of standard payment terms, so you don’t have to wait for them. Many options exist, ranging in length from 14 to 90 days or even longer.

What Are Large Business Loans?

Do you need up to $2M for your business? Would you like a business loan with no upfront costs and no collateral? Imagine being approved for a loan within 24 hours and funded in the next few days. What would that do for your business now? (If you need $5M to $60M, call 888.560.7736)

What is the difference between a small business loan and a large business loan? The difference is usually just an extra zero. 

The difference between a traditional lending institution and a company like Sunwise Capital is enormous. 

The requirements of large business loans are no more demanding than those of small business loans, and all you need to get started and approved is a one-page application and the last three months of business bank statements. That’s it!

Most online or alternative lenders will require additional supporting documentation for any loan over $100,000, like last year’s tax return, a current P&L, and a Balance Sheet. Amounts below $100,000 are just the application and bank statements.

If you’re asking yourself how to get a large business loan, these are relatively low hurdles to qualify and get approved. You might be shocked at how fast you can be eligible and get money into your business.

Short Term Loans

You can use short-term business loans to invest in your company as it grows. You must pay the loan back by the end of the term, which is between three months to a year. 

Purchased Inventory Loans

There are many types of inventory loans, and they all fall under the umbrella of borrowing money. You’re engaging in secured borrowing if you borrow money with the understanding that you’ll pay it back over time, with interest. When a company needs money to buy inventory, an inventory loan can provide either a lump sum or a credit line.

What are Merchant Cash Advances?

Maybe you’re thinking, I’d like you to lend me some money. 

Do you remember the cartoon Popeye? 

Do you recall Popeye’s friend Wimpy? Remember when he said, “I’ll gladly pay you Tuesday for a hamburger today.”

Well, that is, in essence, a merchant cash advance. (Editor’s note: the difference is that Tuesday never came for Wimpy, and he always ate for free, which is not the case with the MCA).

The way a cash advance works is simple. The merchant cash advance lender will analyze your previous three months of business bank statements and maybe your credit card transactions. They will analyze a detailed cash flow to determine how much you can afford.

Based on that number, they will advance you the funds (the Hamburger) and start collecting repayment as you batch your credit card and debit card transactions daily.

Merchant cash advances are easily the simplest type of funding vehicle. The merchant cash advance industry literally dates back to the Egyptians and became popular again as the Pilgrims settled in England in the late 1950s and ’60s.

Since personal credit is rarely a factor, the merchant cash advance rates are competitive and usually reflect the risk in the business. 

Trucking Loan

Besides the SBA loans banks offer, other financial institutions cater to trucking companies by providing their financial solutions. Time and effort are two of the most important considerations when applying for a truck loan. As with any other small business loan, having a good credit score will increase your chances of being approved for a commercial truck loan.

Consider using equipment financing to help pay for your truck purchase. Getting up to $50,000 in SBA microloans funding is also possible. In addition, short-term loans, credit lines, and business credit cards may be available, but the interest rates on these are typically higher.

What are Unsecured Business Loans?

Most online or alternative lenders do not require collateral or security, and as a result, these are considered unsecured business loans. All you need for loans under $100,000 is a simple one-page application and the last three months of business bank statements (you need a business checking account).

For more significant amounts up to $500,000, you may need to provide a current year-to-date balance sheet, P&L, and last year’s tax return. Loans up to $2M will have other stipulations. 

The underwriter will discuss any additional documentation necessary to close the loan. Generally, the credit limits are between $10,000 and $2M, and you can ask your lender about payment calculations. 

What Does it Take to Apply?

Comparing banks or credit unions, the loan application process with online lenders is fast and straightforward. The banks will require a substantial amount of information. Depending on the loan type, you and all your business partners will have to provide enormous paperwork to pass their credit approval process regardless of what percentage they owe. 

Some 23 separate documents include the past three years of business and personal tax returns, financial statements, and a business plan, not to mention the collateral or assets you’re posting to secure the loan.

Are Business Loans Secured?

Banks, credit unions, and traditional lenders require posting assets or collateral to secure the loan. Often, you will find they need a 3:1 ratio, meaning putting up cash, cash equivalents, or liquid collateral to cover the loan’s principal by three times.

How Are Business Loans Secured?

Securing the loan can be done through a variety of instruments. Some standard collateral is:

What Can Business Loans Be Used For?

These loans are for any business purpose. These uses can range from:

Most of these loans have a repayment period between 6 months and two years, and SBA loans can be between 5 to 10 years. Loan terms may include daily, weekly, or monthly payments. 

Is a Business Loan Effective?

Your business will profit from the cash and accessibility to money that an infusion of capital offers. Some companies even believe it to be more advantageous to be significantly leveraged. They are those businesses that take on more liability than equity. Since their ROI is relatively high, they use other people’s money to make more for their businesses. 

[NOTE] We get asked the following four questions a lot. We ARE NOT tax experts (but we did sleep at a Holiday Inn last night – a joke if you know the commercial), CPAs, accountants, or tax attorneys. Please consult with a professional before making any decisions based on these questions. 

Can Business Loans Be Written Off?

Yes! 

You can deduct the interest you paid on a business loan using the IRS “business loan interest” deduction. 

When taking out a loan for your small business, keep track of the interest you pay over the year so that you can deduct it from your taxes.

Are Business Loans Deductible?

If you haven’t accrued interest on the principal, you can’t claim the loan repayment as a business expense, and it’s just money you got and then had to pay back. On the other hand, the interest is not included in the original loan amount and, therefore, is tax-deductible.

Are Business Loans Taxable Income?

Please consult with your accountant, CPA, or tax attorney. We are not accountants or attorneys. One benefit of borrowing money is the cost of funds is tax-deductible. So, when you calculate the loan’s actual cost, you must factor in the additional tax benefits to derive your true cost of funds. 

Bear in mind that when rates are relatively inexpensive, it offers a higher rate of return. The loans are not considered income or taxable income. Not to get into the weeds too deep, but often they are regarded as off-balance-sheet financing. Again, consult with your tax professional. 

Regardless of the type, size, or term, business loans should all come with top-notch personal service. 

Are Business Loans Worth It?

Growing your business is not a daydream; it is real. When bootstrapping no longer works, isn’t sufficient, or worse, is not a possibility, you don’t have to stress out. 

Speak to Sunwise Capital and find out what’s available to your business. There is no cost or obligation, and we do a soft credit pull, so there is no impact on your personal credit score to find out. 

Make the right choice. Talk to the best business loan lender. Aligning yourself with the right individuals means reaching your goals sooner rather than later. 

Why Sunwise Capital Loans?

You and your business are essential. Right? 

When talking to a lender about a business loan, make sure that the answer you’re given options for your requirements. While everybody appears to be proposing the same standardized loan, the company that pays attention ensures you receive a business loan that helps build and not put you over a barrel. 

We caution you against talking to fast-talking twenty-five-year-olds who put a commission over your business. What am I talking about? If someone is telling you that you can receive much more money than the other lenders, there is a good chance that the business loan broker is trying to get you two loans simultaneously. 

This strategy is known as stacking and is frowned upon by most lenders. Plus, it usually leads to a spiraling and out-of-control squeeze on your cash flow.

Many business owners have tried to “consolidate” their loan payments. The Truth: There are no consolidation loans. Don’t get trapped; it leads to the one-way street called “Out of Business.”

Also, be wary of the lender or broker who promises that your high-rate loan can be replaced or converted to a line of credit after a short time. Good luck trying to talk to that person again after he funds you the first time. 

To make it worthwhile means getting to a “YES.” 

Know that at Sunwise Capital, we’ve walked the proverbial mile in your shoes. We’re previous business owners, just like you, who fought in the trenches to make payroll, just like you. As a result, we seek a continuing and mutually beneficial relationship. 

We promise that when you come back for more funding, as seventy-five percent of our clients do, we provide you with more money. We’ll give you better terms and even better rates. It works for our clients now, and we know it will work for you, too.

However, good customer service shouldn’t mean paying higher costs. While it is right to evaluate if the price of a business loan is worth the risk, it is even better to find a business loan lender that will provide top-notch service without charging hefty fees. 

It’s common in the industry to put a high price on services to account for their complex lending procedures. But there are business loan lenders with a practical business model. 

When applying for a small business loan online with Sunwise Capital for your funding needs, you can be confident that you’ll get the most competitive rates and terms. 

We’re so confident that we have a $500 Guarantee*. (Click here for details)