Business Loans

Small Business Loan Guide: Rates, Payments & More

Small Business Loans: What You Should Know

Nothing grows your business faster than getting outside funding. It’s a fantastic way to fuel expansion, boost marketing, and hire more staff. And one of the best financing options available to entrepreneurs and business owners is a business loan.

In this article, we’ll discuss what a business loan is, the many different types of business loans, and how you can make them work to grow your business rapidly.

How Business Loans Work

A business loan is any financing option that enables companies and entrepreneurs to borrow funds for their business operations. The borrower then pledges to pay back this amount to the lender, plus interest depending on the agreed-upon small business loan interest rates. 

To successfully apply for small business loans, banks need to see that you’re credit-worthy. This assessment depends on several factors, including the owner’s credit score and financial performance of the business. 

Banks also prefer more established companies, so it might be harder to get business loans for new small businesses. The exception is if you have a startup business. If you need to get a startup business loan capital, then you need a good credit score to qualify.

Loans can either be secured or unsecured. A secured loan is a guaranteed business loan that requires collateral. Requirements are usually relaxed, and it’s easier to get approved since there’s less risk to the lender. Unsecured loans are those without collateral. Since there’s no guarantee, you would need an outstanding credit score to get approved.

Types of Small Business Loans

We often think of business loans as just one loan option, but the reality is that there are a variety of merchant funding options. L3 Funding offers several different kinds, and what you choose depends on when and how you plan to use the loan.

L3 Funding’s unsecured business loan can give you a quick infusion of capital when you need it the most. It requires no collateral and has flexible payment terms. You can choose between small business loans with monthly payments or small weekly loans, depending on what works best for you.

Some businesses also prefer a secured Business Line of Credit instead of a lump sum loan. The advantage is that you only withdraw the amount that you need, only when you need it. It means you only pay interest for the money that you use. L3’s Business Line of Credit is useful for daily expenses and in case of emergencies.

If you need cash fast, consider L3 Funding’s Merchant Cash Advance. This loan type allows you to leverage your business’s future sales to get a lump sum of money in advance. It’s convenient and doesn’t require any strict requirements.

How to Use a Small Business Loan

There are many legitimate business reasons for taking out a loan. One of the most common is to help with the company’s cash flow. A cash infusion or line of credit is useful to help maintain your company’s operation during lean times. These include paying for rent, utilities, and payroll.

A business loan is also great for stocking up on inventory, especially in preparation for busy seasons of the year. Buying in bulk also helps you qualify for more significant discounts, giving you savings long term.

You can also use business loans to grab opportunities to expand your business. These can include getting new equipment to increase your production or hiring additional staff to handle increasing demand. Loans can even be used to acquire other companies as a strategic move.

Is a Business Loan the Best Option for You?

A business loan is a great financing option, but it’s by no means for everyone. Borrowing always carries a risk that you’ll default on your loan, so you need to be prepared. If you’re considering a business loan, ask yourself why you need it. Is it to fund a business expansion that has a high chance of generating returns for you? Or is it merely to spend on trivial things that will not impact your business in the long run?

Your business also needs to be able to afford the costs of taking out a business loan. Too many companies go under or fail to expand because they’re under piles of overdue loan payments. Get a business loan if there’s no other option you can take. Otherwise, explore alternative sources of funding. 

One of these is a business credit card. Credit cards are convenient and can have some perks and rewards. However, be wary of the interest rate for late payments, which is way more than most small business loan rates on average.

Getting a business loan can be a great stepping stone to expanding your operations and revenue. However, banks and financial institutions generally don’t make it easy with long approval times and stringent requirements.

If you’re looking for a faster and better way to get business loans, apply now for a free consultation with L3 Funding.