A Simple Guide for First-Time Borrowers
If you’ve never applied for business funding before, the process can feel overwhelming. You might be wondering: Where do I even start? Will I qualify? What does a “business loan” really mean, anyway?
You’re not alone—and the good news is, small business loans aren’t as mysterious as they seem.
In this guide, we’ll break down what a small business loan is, how it works, the different types available, and what to consider before applying. Whether you’re just launching or ready to grow, this is your first step toward understanding your options.
So… What Is a Small Business Loan?
A small business loan is money that a lender provides to a business—usually with the expectation that it will be paid back over time, with interest.
Think of it like a personal loan or a mortgage, but for your business. You borrow a set amount of money (called the principal) and agree to repay it over a certain period (called the term), with interest and fees.
Small business loans are used to:
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Start a business
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Cover day-to-day expenses
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Buy inventory or equipment
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Hire employees
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Expand into a new location
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Get through slow seasons
Some loans are short-term and fast. Others are long-term with lower payments. The right one depends on your business, goals, and financial situation.
How Does a Small Business Loan Work?
Here’s a quick breakdown of how small business loans typically work:
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You apply with a lender – This might be a bank, credit union, online lender, or broker network.
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You provide documents – Think bank statements, tax returns, a business plan, or financial projections.
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The lender evaluates your risk – They’ll look at your credit score, revenue, time in business, and how you plan to use the funds.
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If approved, you get the funds – Usually as a lump sum or line of credit.
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You repay the loan – On a weekly or monthly schedule, depending on the loan type.
Some loans are secured (backed by collateral like equipment or real estate). Others are unsecured and based on your credit or business revenue.
Common Types of Small Business Loans
There’s no one-size-fits-all loan, so here are a few popular types:
Term Loans
You borrow a set amount and repay it with interest over a fixed term (like 1–5 years). These are the most traditional kind of loan.
Business Lines of Credit
You get access to a credit limit and only pay interest on what you use—like a credit card for your business.
Equipment Financing
Used to buy business equipment. The equipment itself often serves as collateral.
Merchant Cash Advance (MCA)
Not technically a loan. You get a lump sum in exchange for a percentage of your daily sales until it’s paid back.
SBA Loans
Backed by the government and issued by banks. These offer low rates and long terms but can take longer to get approved.
Do I Qualify for a Small Business Loan?
Every lender has different requirements, but most look at:
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Your credit score (personal and/or business)
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How long you’ve been in business (often 6+ months)
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Your monthly or annual revenue
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Your business plan and use of funds
If you’re a startup or have poor credit, don’t worry—there are alternative options available. What matters most is knowing where to look and being prepared with the right documents.
Final Thoughts: Start With Knowledge, Not Pressure
Getting a small business loan doesn’t have to be scary. The more you understand your options, the better decisions you can make for your business.
Whether you’re ready to move forward or just starting to explore your options, Smarter Business Funding is here to help you take the next step—without the pressure.
✅ Ready to Learn More?
Download our Ultimate Business Funding Guide to understand your funding options, or take the first step and Get Pre-qualified (below) to see what may be available to you.