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A small business loan is a loan which provides financial assistance to a small business. The precise definition of “small business” varies, depending on the agency performing the defining. Some people define a small business by a set number of employees, while others focus on annual income or business practices when formulating a definition. Small business loans are vital tools for people who operate small businesses.
There are a number of different types of small business loan. Some are designed for new businesses, in which case they are often unsecured, because the loan applicants have nothing to pledge as collateral. In other instances, a new business loan may be issued to people who are willing to back the loan with their home or another large asset. In some nations, government agencies help startups by providing insurance for unsecured small business loans, so that people can access startup capital.
Other small business loans are designed for businesses which are already established. The loan may be taken out to renovate facilities, purchase real estate, expand, invest in new equipment, or stock inventory. For example, a business might take out a loan to stock inventory in advance of the holiday season, counting on holiday sales to repay the loan.
Small business loans can also provide working capital to businesses which need more cash flow. They are used on occasion for funding crises like meeting payroll or coping with unexpected expenses. Since many nations support the idea of small businesses and want to encourage their citizens to start up and manage their own businesses, it is sometimes possible to get a small business loan which is issued by a government agency, typically with a reduced interest rate and favorable repayment terms.
Getting a small business loan can be difficult, since many lenders regard small businesses as risky borrowers. It can help to work with a bank you are already established with, as your track record as an individual may be considered by the bank when it evaluates a loan application. Government agencies may also be able to provide suggestions or assistance in applying for small business loans. Other people turn to private individuals and companies for startup loans, relying on these investors to get their businesses going.
A good resource for information about a small business loan is a local small business association or chamber of commerce. While the staff at these organizations cannot offer loans, they can point people in the right direction to get them started with the application process.
The most important piece of advice that I can give you is to be prepared. Most independent banks are willing to work with small businesses. When you meet with a potential lender, it is important to make sure that you know the process and your business. Only ask for what you need and be prepared to justify it. Asking for "whatever I can get" is the worst thing that you can do. It looks like you don't know anything about your business or its needs. Also, you may want to have a loan package prepared to give the lender. This way they can review your information and work with you.