What are Business Loans?

Every business needs capital, and small business loans fill that need. There are two common types of business loans: short-term and long-term. Short-term loans include lines of credit and accounts-receivable loans. Long-term loans can take as much as seven years to mature, and they are generally used for major business expenses such as the acquisition of facilities and vehicles. Business loans can be secured or unsecured and they can have fixed or variable terms.

Why are Business Loans important?

Business loans are important for businesses if the owner is looking to start the business, expand the business, improve the business, and, perhaps, to pay down debts to other entities. A business loan is very similar to a personal loan, in that it is an amount of money that the business will have to pay back, usually with interest, to the lender and can be used to finance a wide variety of things.

The type of business loan will depend on the individual business and the business's needs. However, the availability of a business loan to a business and access to financial resources may mean the difference between a business that succeeds and a business that fails.

Keep in mind also that once a business obtains a business loan, the business is on its way to building a credit score. The higher the credit score a business has, the lower the loan rate the company will get in the future.

How should a vendor for Business Loans be selected?

You should select a vendor for your business loan in the same way that you would select a vendor for your personal loan; review the reputation of the lender and look for the lowest possible loan rate.

If you are looking for capital to start or acquire a new business, the loan rate will most likely be based on the financial standing of the owner of the business until the business establishes its own financial standing. However, by having a loan, the business is well on its way to building its credit score. Once it has a financial history, the business may be able to obtain a loan for capital improvements and other expansions.

Be sure to verify the reputation of the lending agency before obtaining a loan. Find out if the loan is secured or unsecured. Ask about fixed rates for the loan and penalties for paying the loan off early or late. It is important that you understand everything about the loan prior to signing on the dotted line in order to ensure that you maintain a high credit score for your business

Keep these following considerations in mind when looking for a vendor for your loan:

• What is the loan for? - Different loan vendors may offer different loan rates and programs for different types of loans. For example, you may be able to get business capital from the Small Business Administration Financial Assistance Program. If you are looking for loans for office space, you may be able to work directly with a bank or other financial lender.

• Interest rate - The interest rate will vary greatly by lending company and your business's credit score and history. For this reason, it is important to build a credit score for your business from the start.

• Amount of loan allowed - Some loan vendors will put a cap on the amount of money that they will allow to be lent to a new business or a business looking to do certain things, such as expansion. Discuss your financial situation, plan, and needs with your loan vendor in order to ensure that he or she will lend the amount of money you need.

• Restrictions of usage of monies lent - Some lending institutions will restrict how you will be able to use lent monies. For example, you may only be able to use some funds for expansion. Other funds may have to be used on personnel. Discuss any restrictions in advance when searching for the right loan vendor.

• Financial reputation and stability of lender - Make sure that the lender you select has a solid reputation for providing loans. Check the Better Business Bureau records for complaints. A Google search may also help to uncover complaints about a company that could help you make your decision.

• Penalties for early pay-off or late payment - Will you be charged a penalty for paying the loan off early? What fees are charged if you miss a payment?

Additional Resources:

• Small Business Financial Assistance Program

http://www.sba.gov/services/financialassistance/index.html

• Business loan advice from SCORE:

http://www.score.org/small_biz_power_links.html