How To Get A Small Business Loan

Learn who offers small business loans and how to get one.

It is estimated that there are nearly 30 million small businesses in the United States, which represent 99.7 percent of all employer firms and churn out the majority of U.S. company innovations. And many of the larger companies we all know and love today once started out small. (Ever heard of that garage start-up now called Microsoft?)

If you’re looking to be a part of this important sector of the U.S. economy, or perhaps you want to grow the small business you already have, there are financing options available to you. But you need to do your research first.

Here’s an overview of what you need to know to obtain a small business loan.

Who offers small business loans?

Small business loans are offered through private for-profit and not-for-profit lending institutions. Your local bank, credit union, savings and loan, and finance agencies may offer small business loans, some of which may be Small Business Association (SBA) loans. While the SBA, a government agency, does not provide funding itself, it does provide guarantees on certain loans offered through financial institutions specifically for small businesses.

There are also non-traditional ways to secure financing. For instance, Sam’s Club is currently testing a pilot program for offering small business loans of $5,000 to $25,000 to members who qualify. And there are other alternative sources for securing small business financing as well.

What type of small business financing is available?

There are two main ways to finance your small business—through equity financing or debt financing. Equity financing involves raising money by selling ownership shares in the company or by requesting loans from family and friends. The upside of equity financing is that you typically don’t have to repay a specific amount at a specific time and your company isn’t incurring any debt. The downside is that you are giving up sole ownership of your company and will likely need to share your profits.

The other type of financing is debt financing, which involves taking out a loan that must be repaid, with interest, at a specific time.

What small business loan options are available?

Each lending institution will offer its own unique small business loan programs, but those that offer SBA-guaranteed loan programs must follow the guidelines provided by the SBA. (However, each institution can offer its own terms and conditions, so it’s best to shop around.)

SBA-guaranteed loan programs include:

• The 7(a) loan program, which is the most popular and provides loans for start-up and existing small businesses.
• The CDC/504 loan program, which is designed for small businesses to acquire fixed assets such as equipment and real estate. These loans are obtained through Certified Development Companies. (Visit your local SBA District Office for a list of CDCs in your area.)
• The microloan program provides small, short-term loans for working capital or the purchase of inventory or supplies. These loans are obtained through specially designated non-profit organizations.
• The disaster assistance loan program provides low-interest loans for the repair or replacement of real estate and business assets that have been damaged or destroyed in a declared disaster.

Ready to take the next step? Learn what you need to apply for a small business loan.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or tax attorney before utilizing any of the information contained in this article.

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