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 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.
|Type of Loan||Description||Interest Rate||Maximum Amount|
||2%–20%||100% of the equipment cost|
|Credit for a small business||
|The United States Small Business Administration (SBA) small business loans||
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.
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 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.
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|
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.
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!
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