Small Business Loans: Types of Financing and How to Qualify

Financial loans

Small business loans can help your company survive the start-up phase, avoid cash crunches, or scale up for growth in 2023. A variety of small business financing products are available from both conventional and online lenders. The wide range of available options is designed to meet the needs of all types of businesses, from small start-ups to large corporations, including loans for businesses with no credit.

In this guide, we’ll cover the basics of finding small business financing. We’ll review the different types of loans available and their benefits. Then we’ll explain how to qualify and what you’ll need to apply for financing.

Types of Small Business Loans

Small business loan options include various products designed to meet different needs. Here are some of the most common:

Term Loans

Term loans are arrangements where you receive cash that must be repaid with interest over a fixed amount of time, known as the loan term. Repayment term lengths range from short-term loans with terms of a year or less to long-term loans with terms of five years or more.

Short-term loans average around $20,000, while long-term loans may extend hundreds of thousands or millions of dollars in financing. Repayment agreements may use fixed or variable interest rates.

Business Lines of Credit

Business lines of credit work let you draw funds from an account with a set limit. You can spend up to your limit, and the money you repay becomes available again to spend. You can use your account by making purchases with a card, writing a check, or taking a cash advance.

Limits typically fall between $10,000 to $100,000 but can be higher. You pay interest on the amount you spend. Interest is higher for cash advances. Some lines are unsecured, meaning you don’t have to put up collateral, or secured, where you put up collateral in return for a higher limit or better rate.

Business Credit Cards

Business credit cards let you borrow up to a designated limit. You repay what you borrow at interest, with funds becoming available to spend again after you repay them. Limits may range from $1,000 or less to $50,000 or more.

Benefits of Business Loans

Business loans provide invaluable benefits, allowing companies to:

  • Finance start-up expansion while trying to establish a sustainable cash flow
  • Cover cash-flow gap projections
  • Survive slow-downs
  • Capitalize on expansion opportunities
  • Repair or replace outdated facilities or equipment
  • Refinance high-interest debt

These benefits make business loans an important resource for effective financial planning and cash-flow management.

How to Qualify for Small Business Loans

Qualifying conditions vary by product and lender. Lenders consider criteria such as:

  • Your monthly or annual revenue, documented by bank or tax records
  • Years your company has been in business
  • Business and personal credit score

Certain loan products may have additional requirements. You may need to provide more extensive financial documentation, financial projections, a business plan, collateral, or a personal guarantee.

In general, the stronger your cash flow and the higher your credit score, the better your chance of qualifying. If you can’t qualify for one lender or product, you may still qualify for an alternative. Some providers even specialize in loans for businesses with no credit history. Online financing solutions for small businesses that use technology can help match you to lenders and products that fit your qualifying criteria.

Get the Small Business Financing You Need

Small business loans can set your financial planning on a track for success. Use the tips shared here to help you find the right type of loan product for you and prepare your application to get the funding you need to succeed.