Everything You Need To Know About the Small Business Loan Terms
A lot goes into choosing the most suitable small business loan, including the loan type and terms. This article provides the ultimate guide to the small business loan terms and tools that you can use to qualify for a loan without breaking a sweat. Use DoNotPay to write a loan request letter and increase your chances of getting the loan approved!
What Are Small Business Loans?
Small and medium-sized businesses require a lot of capital to fund their expenses and need all the financial assistance they can get. A small business loan provides such companies with the capital to cover their short-term and long-term expenses, such as:
- Daily expenses
- Equipment and real estate purchase
- Other business projects
What Are the Typical Terms of a Small Business Loan?
A loan repayment term is the amount of time that a borrower has to pay back the loan. Here is a brief overview of the small business loan terms based on the different loan types:
| Type of Loan | Loan Amount | Repayment Term | Interest Rate | Approval Time |
|---|---|---|---|---|
| SBA loan | $5 million |
|
Can be fixed or variable, ranging from 2.75–4.75% | Ranges between 36 hours to two weeks |
| Term loans | Ranges from $50,000 to $1,000,000 |
|
Depends on the lender type | Between a few days and a few weeks |
| Bank loans | $500,000 | Three to ten years | 3–22% | From one week to two months |
| Business line of credit | Between $1,000 to $250,000 | Six months to five years | 10–99% | Within a few days |
| Microloans | Up to $50,000 | Up to six years | 8–13% | Online lenders take up to 24 hours, while banks can take a longer time |
| Equipment loans | Up to 100% of the equipment cost | Same as the life of the equipment | 2–20% | Online lenders might approve within a day, but banks take approximately a few weeks |
| Inventory financing | 20–65% of the inventory cost | Up to a year | 0–80% | Between a day to a month, depending on the lender type |
| Merchant cash advance | $500,000 | Three to 18 months | A factor rate is between 1.1 and 1.5 | As little as 24 hours |
How To Decide if the Business Loan Terms Are Right for You
To decide if a business loan has suitable terms and conditions, you need to consider the following factors:
- Reason for getting a loan
- The total amount of money that you require
- Interest rates
- Repayment terms and conditions, including how you plan to cover your regular business expenses
- Current working capital
- The type of lender that you choose
If you have a good credit rating and require a large amount of money, you can opt for a bank loan. Banks provide a higher amount of loan, with favorable repayment terms and interest rates. In case you own a new business or have a low credit rating, you can search for lenders online or visit peer-to-peer lending sites.
Requirements for Getting a Small Business Loan
Depending on the type of lender you choose, there are several requirements that you need to fulfill to qualify for a small business loan approval. Here is a list of the essential ones:
- Personal credit score—For many lenders, a personal or business credit score is a deal maker or breaker. If you have a good credit score, you guarantee the repayment of the loan, and more lenders will offer to give you a small business loan. A poor credit rating reduces your chances of getting loans from reputable organizations
- Cash flow—Your bank statements, cash flows, and budget sheets let the lender know that you’re capable of returning the loan and represent your business’s health
- Age of business—Most banks and traditional lenders require a business to run for at least two years before the owner can apply for a loan. If you have started your business recently, you can look for online lenders to cover startup costs
- Collateral—To approve a loan, some lenders may require collateral, which can be any tangible asset already owned by the business owner, as a guarantee for repayment
- Business industry—The type of industry your business operates in is also a major factor for lenders to consider. Some lenders avoid industries they consider risky or markets that have unsteady cash flows. Examples of such businesses can include gambling or adult entertainment industries
DoNotPay Can Help You Create a Loan Request Letter Within Minutes
Do you want to secure a loan from a lender without any complications? Our app is here to help you write a loan request letter within minutes. Here is what you need to do:
- Open DoNotPay in your web browser and find the Business Loan Request Letter tool
- Gather and prepare your credit scores and financial statements
- Enter the details about the type of loan you want to secure
- Upload all the required documents
Once you’ve provided us with all the information, we will create a personalized demand letter that you can use to apply for the loan.
DoNotPay Can Find the Best Lender for Your Needs
DoNotPay will help you navigate the application process from start to finish!
If you aren’t sure whether banks or other lenders offer better loan terms, input your requirements and details about your business in our app, and we’ll find the best lenders for you!
You can use our Find Online Business Loan Lender product to enlist DoNotPay’s help in finding the most suitable loan for your needs.
This tool is also integrated with our Business Loan Request Letter feature, which means that we can find you the lender, draft the loan request letter, and send it to the chosen lender in your stead! How much easier can it get?
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Running a Business Is Smooth Sailing With DoNotPay
DoNotPay has a solution for any business issue. We can help you:
- Draw up a professional and convincing small business loan request letter and get the necessary funds for your business
- Report unjustified negative reviews that could damage your brand until they are taken down
- Request payment from clients who break the contract
- Dispute chargeback requests when they are unfair
- Send letters or paperwork without going to the post office