Business loans can finance operating needs, equipment, a purchase or expansion. A term loan and a revolving business line solve different cash-flow problems. Before looking for a provider, describe the use of funds and how the business expects to repay.

How the borrowing arrangement works

Prepare current financial information and a realistic cash-flow forecast. Ask whether the product requires security, a personal guarantee or a minimum trading history. Keep the business's obligations separate from assumptions about consumer-loan protections.

Costs and repayment

Compare the payment frequency, full financing cost and any prepayment terms. Daily or weekly collections can affect cash flow differently from monthly payments. In the United States, SBA programs include 7(a), 504 and microloans, each with a different purpose and requirements.

Preparing to compare offers

• Prepare a use-of-funds budget, bank records, financial statements and a realistic cash-flow forecast.
• Ask about business age, revenue, ownership, industry and credit requirements for the specific program.
• Identify collateral and any personal guarantee, including who is responsible if the business cannot repay.

Questions worth asking

• What business need will the funds cover?
• Is a personal guarantee or asset security required?
• Does the repayment match the business cash cycle?

A factor rate is not an APR

If an agreement describes repayment using a multiplier, calculate total dollars due, deductions and payment frequency. For example, $10,000 multiplied by 1.3 is $13,000 before other fees, but the multiplier alone does not describe the annualized cost.

Does SBA approve every small business?

No. Eligibility and lender requirements apply, and the programs have different purposes.

Is a merchant cash advance the same as a loan?

It may have a different contractual structure. Compare it separately and review the actual agreement.

BorrowCompass provides a guide to this topic at what happens after business term loan approval. Review current provider terms before making a borrowing decision. BorrowCompass does not issue loans or guarantee approval.