Is a Small Business Loan Installment or Revolving—What Does That Mean?

If you need financial help to cover startup costs or any other business-related expenses, you can get cash by taking out a small business loan. Receiving money and investing it in your business is the fun part, but what comes next—not as much.

Once you take out a loan, you will need to pay back an amount larger than the one you received. So the question is—is a small business loan installment or revolving?

In this article, we will show you:

How small business loans work
The difference between installment and revolving loans
How business lenders set up the repayment structure
How you can use DoNotPay to get a business loan hassle-free

Small Business Loans—How They Work

Small businesses rely on profit and investment to survive. You cannot run a business without being able to pay all the expenses that come with it. When the profit and investments are not there, you can turn to small business loans as a source of funds.

These loans provide financial help to small businesses for a variety of purposes, including:

Improving and expanding the business
Buying new equipment
Restocking the inventory with supplies
Managing cash flow with working capital
Obtaining insurance and licenses
Covering startup costs
Paying seasonal expenses

When you apply, you need to have an exact purpose for which you are asking the loan if you want a lender to accept your application. Without a clear business plan, they will find you to be too much of a risk.

Aside from the purpose, loans come with several terms that define the rules of the loan. These conditions are as follows:

Before you request a loan, you should do research and make sure you are aware of all terms and what they mean for your business. Choosing the wrong loan can prove to be an error your business cannot recover from.

Another aspect of the loan you should consider is the source of the loan. Various lending institutions, such as online lenders, banks, and credit unions, provide business loans, and they differ in the terms they set. For instance, banks usually have stricter criteria, while online lenders offer startup loans with high interest rates.

Types of Loans

Small business loans have different types, based on the source and the terms they come with. Take a look at this table to find information on some of the best small business loans available:

Type of Loan	Description	Interest Rate	Maximum Amount
Equipment loans	Can be both an installment and revolving loan The exclusive purpose is to buy equipment Repayment period equal to the equipment lifespan	2%–20%	100% of the equipment cost
Microloans	Small loans for cash flow Can be revolving loans	8%–13%	$50,000
Credit for a small business	Instantly receivable For recurring expenses Repayable in up to five years Revolving repayment structure	10%–99%	$250,000
The United States Small Business Administration (SBA) small business loans	Long-term investment Repayment period of 25 years The SBA acts as a guarantee in case you fail to pay the loan back Installment loan	5.5%–8%	$5 million

Is a Small Business Loan Installment or Revolving?

The answer is—both. While installment loans are much more common, there are still revolving loans in the shape of lines of credit and short-term loans like some microloans.

Revolving loans usually offer lower amounts of money and have shorter repayment periods, whereas installment loans come with higher interest rates that are fixed and do not change over the course of repayment.

Installment Loans

Loans that have a longer repayment period and a higher loan amount usually ask for repayment in steady installments. The terms of these loans are fixed and known in advance—once you agree on an interest rate, it will stay the same until the end.

When a lender approves your loan request, you will receive the entire amount in one sum, giving you the option to make the highest possible investment immediately.

Most installment loans require collateral—an asset the lender can take away if you fail to repay the loan.

Revolving Loans

Revolving loans allow you to keep borrowing money until you hit the limit the lender sets. Interest rates are not always the same, as they vary depending on the amount you borrow.

The main difference between the two is that revolving loans allow you to take out more money, while installment loans pay everything upfront.

For instance, if you take out $2,000 on a revolving $10,000 loan, you can take another $8,000 in as many sittings as you like. An installment loan would give you the entire sum, and you cannot ask for more.

Which Is Better for a Small Business Loan—Installment or Revolving?

It all depends on your business needs and how your budget is structured. To some, it is easier to have a steady expense for a number of years, while others find it more convenient to have some leeway in how they repay the loan.

If you are not sure which one suits you better, check out this table to see the advantages and disadvantages of both revolving and installment loans:

Revolving Loans		Installment Loans
Pros	Cons	Pros	Cons
Flexibility Easy application process Collateral is not always required Cashback available Repeated access to funds	Not tax-deductible Requires good credit score Can affect your credit score negatively Higher interest rates Maintenance fees	Predictable repayment structure Higher loan amount Entire sum upfront Low costs of borrowing	Difficult to get approved Lengthy application process Penalties on late payment

How To Obtain a Loan With DoNotPay

If you want to apply for a small business loan successfully, be ready to go through a complicated process that will require a lot of time and effort.

To prove that you qualify for the loan, you will need to submit various documents, including a business plan, budget sheets, credit score reports, and financial statements. You will also need to provide many details about your company.

If you want to avoid getting denied because of an incomplete application, you can rely on DoNotPay to guide you through the process. Our app will make sure you submit all the necessary paperwork and include every detail the lender asks for.

All you need to do is sign up for DoNotPay and:

Select the Business Loan Request Letter feature
Gather your personal and business credit scores
Prepare documents to prove your eligibility
Answer a few questions
Upload all the required paperwork

If you are not sure which lender you should choose, you can use our integrated Find Online Business Loan Lender product and let DoNotPay narrow down the options for you.

Take Care of Pesky Business-Related Procedures Effortlessly!

As a business owner, you are bound to deal with various complex processes. Luckily, DoNotPay can help you handle most of those procedures stress-free. Do you need to register your business name as a trademark, file the self-certification request with the Privacy Shield program, or report illegitimate and inappropriate negative reviews? Our app enables you to do it within minutes.

That is not all we can do for you! With our nifty products, you can make the filing of 83(b) election forms a breeze and take care of DMCA agent and Employer Identification Number (EIN) registration in no time.

Need a solution that will facilitate correspondence with your business associates or clients? DoNotPay has the right faxing and mailing product for you!

Don’t Spend a Small Fortune on Lawyers—Draft Various Documents With DoNotPay’s Help

Drafting legal documents does not have to be complicated or expensive. DoNotPay has a variety of tools that you can use to get a:

Letter requesting a loan for your small business
Cease and desist demand regarding your trademark (if someone tries to use your business name, logo, or slogan)
Formal demand letter requesting a client to pay for your services
Personalized chargeback rebuttal document based on the:
- Chargeback reason
- Chargeback code
- Service you offer