Small Business Loans Key Terms

Understanding crucial elements and the available types of small business loans

As you work to start your business, you may find that you don't have the funds available to reach the goals you have in mind. Under such circumstances, you may want to consider applying for a small-business loan to help boost your start-up or expansion dreams. However, there are several types of small-business loans, and several elements you need to be aware of, before you consider putting your business in debt.

Business plan

A brief description of a business plan is a detailed analysis of your company structure, your plans for the company's future and how you plan to use funds received in a small-business loan in order to reach your goals. Be aware that you won't be able to obtain a small-business loan without a business plan to present to the potential lender.

Collateral

Collateral is the asset you pledge to a bank as full repayment of the loan if you default, giving the lender full authority to seize the collateral property in order to make up for its loss. Typically, it is real or personal property of substantial value, such as your business, machinery or vehicles.

Guarantor

A guarantor is an individual or business that guarantees to pay back your small business loan to the lender should you default. Basically, a guarantor is a means of providing collateral to the bank when you have no property available to use.

SBA loan

An SBA loan, or Small Business Administration loan, is not really a loan at all, at least not in the sense that the money comes from the SBA. The U.S. Small Business Administration offers loan programs through lenders in which the SBA serves as the guarantor of the loan. The SBA requires your business to meet certain criteria before it will assist your start-up.
U.S. Small Business Administration.

Unsecured

Unsecured means there is no collateral required for your business to receive loan funds. Businesses that have high credit scores and a successful financial history will likely get approval for an unsecured loan. Most unsecured business loans come in the form of a cash advance or line of credit.

Line of credit

A business line of credit, or LOC, is basically a loan in which your business has funds available from a lender on a needs basis to keep debt to a minimum. The lender agrees to provide you with funds up to a certain amount, and you use those funds when income from your business won't cover expenses, such as for unforeseen repairs or the purchase of new supplies and equipment.

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