To run a startup or a small business can sometimes be a financial struggle. It is not easy to overcome financial difficulties in business which is why many entrepreneurs have no choice but to give up on their dream.

On the other hand there are startups that are doing great where business is booming. But these businesses are holding back on expansion due to the big amount of money that is needed. One way to obtain funding for expansion is to raise money through venture capitalists. But this equals giving away a part of the company. In this situation it’s often more favourable to apply for a small business loan. At least for the entrepreneurs who wants to keep their ownership and power in the company.

Definition of a small business loan

A small business loan is usually a loan between $1000 and $100000. Most times there is no security needed except from personal guarantee. A small business loan can be provided by both banks and alternative lenders. The loan can come in different shapes such as a line of credit, accounts receivable financing or a small business term loan. Which loan to choose depends on your company’s needs and financial situation.

To be granted a small business loan your company need to have a good credit score. The same goes for the owner. Why your personal credit score is as important is because it shows your ability to repay the debt if your company is unable to do it.

When you take a small business loan you have to pay both an annual interest rate (AIR) and different fees. Common fees for these kind of loans are application fees, processing fees and service fees. Since the fees between different lenders can vary we recommend you to always compare the annual percentage rate (APR). In this rate all fees are included.

When is a small business loan a good solution?

Since a small business loan can be very expensive an application should be preceded by a well-though-out decision. You should also keep in mind that a business loan with personal guarantee is a risk for your own personal finance. If your company goes bankrupt the dept will end up on you. This is why you have to make sure that your business can handle the cost that comes with taking a small business loan. To lower the cost you can use a comparison site such as that will help you find the cheapest small business loan.

Despite the cost it can be very effective to take a small business loan. At least if you know that the extra money can make your business grow. There are many situations where a small business loan can be a good solution. For example when your company need to purchase equipment or inventory. A small business loan can also be used for expanding the operations and hire new staff.

Some startups and smaller companies also use small business loans to manage the day-to-day operations. Working capital can not be underestimated and is often a prerequisite of a successful business.