Millions of Americans nationwide own small businesses that they rely on for part or all of their income. Even when business is good, they may find at some point that they need additional funds to grow or expand, and when they do, they may shop for small business loans to help them do that.
Small business loans come in many different forms, from many different sources. Banks and credit unions are two popular sources for these loans. SBA loans are also very popular, though it's helpful to understand that these loans are made by individual lenders, not the government. (The government guarantees SBA loans.) Community Development Financial Institutions (CDFI's) also make small business loans, often in underserved communities or to those who traditionally have had trouble getting loans. Finally, some crowdsourcing websites are offering short-term loans to small businesses.
Small business credit cards are also a popular source of financing. They can be relatively easy to get and can offer credit card rewards such as airline miles or reward points for purchases made with the card.
If a business is fairly new, does not have many employees or does not have significant cash flow, lenders will almost always check the credit scores of the owner and sometimes officers, as part of the application process. In addition, most lenders will require the owners of these types of businesses to provide a "personal guarantee," which means if the business defaults, the lender can try to collect from the business owner's personal assets or income.
Applying for a small business loan can be much more involved than applying for a personal loan. For instance, lenders will typically require that current or prospective small business owners supply them with financial information, including business and personal tax returns, cash flow projections and current statements. They may also ask the borrower to document how the money will be used. It's important that you are well- prepared when applying for a small business loan so you have the best shot at getting the lender to say yes.
If you can't get a small business loan, but your credit scores are good, you may want to get a personal loan and use it to finance your business instead. Check with your accountant to make sure you take advantage of tax deductions that may be available.
Disclaimer: The person depicted is a model accompanied by a testimonial for illustrative purposes only.