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Small Business Lending

Anne Miller

Anne Miller

Senior Author

Anne Miller

Senior Author

Small Business Lending Options

 Small business lending is a multi-billion-dollar business in the United States – it encapsulates all the money that is given to business owners by commercial banks and various other lenders. The amount of money given to small business owners often depends on the economy at the time of lending.

The United States government sets interest rates in order to dictate whether lending will be prevalent or not. If the economy is sluggish, the United States government will lower interest rates and increase government lending programs to help supply capital to small business owners. On the other hand, if the economy is expanding too quickly, the government will increase interest rates to prevent too much capital from being spent – which will increase savings.

This article has been written to give business owners a better understanding of small business lending and the various options available to them. It provides in-depth explanations of various lending avenues and government initiatives that will help provide funding for companies. Small Business Lending

Small Business Lending Statistics

The exact size of the small business lending industry is hard to quantify – there are thousands of different lenders offering different products that aren’t always traceable by a monitoring body. But it is safe to say that the entire industry is worth at least hundreds of billions, if not trillions. Despite not having 100% of the needed information, there is a lot of publicly available small business lending data.

PayNet provides monthly reports on small business lending in the form of a chart and index – it is called the small business lending index. It assesses how much money is being given to small businesses by large institutions and various other lending bodies around the country. It is one of the best indicators of how much money is passing from creditors to debtors within the small business market.

If you head to the small business lending index you will find that the past few years have seen consistent data pointing to over one hundred billion dollars being given to small businesses every month – a very impressive figure.

Types of Small Business Lending

There are two major types categories when it comes to small business lending. The first is private lending for small business, which tends to be banks lending to small businesses throughout the country. On the other hand, there are also government initiatives to provide capital for small businesses.

This is either done directly, or by insuring loans that are issued by commercial lenders, which in turn makes these commercial lenders more likely to lend money to small businesses. This portion of our guide will be dedicated to explaining the various ways that you can receive lending for your small business.

Government Initiatives in Small Business Lending

The United States Government has a vested interest in small businesses succeeding. For this reason, they provide various initiatives to help small businesses attain finance. The government does this through two primary initiatives: the small business lending fund and SBA insured small business loans.

Small Business Lending Fund

The small business lending fund is a government initiative to help finance various community lenders who then in turn use the funding for lending money to small businesses. These community lenders typically have a set ethos that dictates who they lend money to. For example, a community lender may try and promote ownership amongst local minorities – in this case you would need to be a minority to borrow from this fund.

The small business lending fund has provided over $18b in capital since its inception 2010. It often provides this finance at very low rates in order to make it accessible to small business owners. You can find local community lenders to see if you are eligible for the financing they offer.

SBA Insured Small Business Loans

A SBA insured small business loan is a mixture of government initiative and private lending for small business. The Small Business Administration (SBA) provides insurance on SBA insured loans. These loans are issued by commercial lenders, but have the backing of the national government.

You can find this type of finance at a commercial bank or even at a small business lending company. Because they are backed by the government, the requirements for these types of loans are traditionally lower than normal loans.

Traditional Financing

Traditional financing is the second form of financial lending that many small business owners use to either start businesses or invest in their current companies. These types of lending are not backed by the U.S. Government, which means that they typically have higher requirements than normal loans. Many of these loans will require you to have some borrowing history, which can be a problem if you are a first-time business owner.

This being said, many commercial lenders will take into account your personal credit history when deciding if they are will to lend you money to start a business. This is another reason it is advantageous to maintain a good personal credit score throughout your life. Below are three types of finance that business owners often use to finance businesses.

Small Business Loan

A small business loan is the most common form of business loan on the market. It is a loan that provides borrowers with a set amount of capital upfront. The amount of capital you can borrow will depend on various factors. Having a strong lending history and a solid business plan are the best ways to ensure you can borrow more money through this avenue. In addition, having existing assets that will be used by the business, and that can secure the loan, will also help if you are attempting this route of lending.

Commercial lenders will provide you with a schedule to pay off the loan over a preset period of time. This schedule must be abided by strictly – you need to pay off the loan when payments are due to avoid fees or reporting on your credit report. Many lenders will allow you to customize this payment schedule depending on the industry that you are operating in. Some will require payments monthly, while other may even require daily payments to offset the cash flow burden of large payments. Because this form of lending normally requires collateral to secure the loan, interest rates are significantly lower than other forms of credit.

Small Business Line of Credit

This is another form of small business lending that many business owners in the United States use. Unlike a normal small business loan, a line of credit is typically unsecured and therefore comes at a higher interest rate. You will also most likely need some lending history to attain a line of credit due to it being unsecured. A line of credit is a form of revolving credit. This means that you are given a limit of what capital you can withdraw, but you only pay interest on the money that you use.

For this reason, it is considered a flexible form of credit. Many business owners use it to help fund seasonal gaps in cash flow, or invest in short-term projects. Because of the nature of the loan, and the high interest rates associated with it, most business owners do not use this form of credit to start businesses. One major advantage of a small business line of credit is that it doesn’t require hefty fees or charges to withdraw cash, which is a great bonus for those who often use cash to pay for or fund aspects of their operations.

Small Business Credit Card

This is the last of the common traditional forms of financing that small businesses use. Small business credit cards are similar to lines of credit in that they are a revolving form of credit. You only pay back the capital that you use on the card. Since most vendors accept credit card as a form of payment, a small business credit card is a very useful tool to have in the modern world of business. You can also issue them to other employees in your company so that they can pay for business related expenses.

Unlike other forms of lending, a small business credit card charges very high fees for accessing cash. For this reason, it is suggested that you attain a line of credit if you plan on needing cash for your business – although, having both forms of credit is very common for small businesses.

Advantages and Disadvantages of Small Business Lending for Your Business

Advantages of Lending

  • Retain Ownership – One of the biggest advantages in attaining finance for your business is the fact that you retain the ownership of the business. Many business owners hate the thought of selling equity to investors – it means that you will have less of the company’s profits and sales revenue in the future.
  • Retain Control – This is similar to the first post, it also revolves around retaining control of the company you have founded. If you sell equity, your investors will have influence over your operations which can mean they have power to take your business in a direction that you don’t want it to go.
  • Build Credit History – An often-overlooked advantage to using a lender is the fact that you are able to build a credit history with an accredited creditor. This means that you can work on establishing a good credit history which will allow you to attain finance easier and at much lower interest rates in the future. Getting your first loan is normally the hardest part about borrowing money.
  • Various Options – The modern world of lending offer borrowers a range of different options that include all different types of lending vehicles. You are able to borrow different amounts for different term times – many lenders provide customized finance for businesses in certain industries.

Disadvantages of Lending

  • Hard to Qualify – It can be hard to qualify for a lot of small business finance options. This is because many commercial lenders will require you to have a lending history or solid credit score before they grant you a loan. This is even true for some government backed loans as there are still requirements – the government doesn’t want to insure a loan that it knows will likely not be paid back.
  • Cost – Receiving money through finance is one of the more expensive ways to fund your business. You will find that if you break down the total cost of the finance you are receiving, it can be quite a hefty sum. There are additional fees and charges that should also be considered when applying for such loans.
  • Potential Repossession – If you fail to uphold your portion of your lending agreement, there is a good chance that the lender will be able to reclaim some of your assets or your entire business in order to satisfy the amount of money that you owe them. This is especially true with traditional forms of credit as they are normally secured against a form of collateral that you must sign over when you accept the loan agreement.


As a business owner, you should be fully aware of the latest trends in the lending industry and how they may impact your ability to attain capital. You should also ensure that you know about various government initiatives to help get small businesses the financing they need. This is the best way to make sure that you have as many options as possible when it comes to lending.

If you do decide to go through a lender to receive funding for your business, you should be ready to ask them various questions. Don’t walk out of a meeting with a lender assuming that you got the best deal you possibly could have. Often, there are many hidden fees and charges that you are not told about upfront. Therefore, it is vital that you ask your lender for a full break down of the amount of money you will be responsible for paying. You should also ask for a total cost of the loan, that way you can properly compare it to other forms of funding. Keep an eye on the small business funding index – the most successful business owners are normally those who understand the lending market.


If you're looking to start a small business, or you need funding for your current business, small business lending is a very important topic. In this section of our website, we'll take a look at some of the common questions we receive about small business lending. Check it out!

General Small Business Lending

Here are the general small business lending FAQs we receive from our readers. Check them out below!

What is a small business loan?

A small business loan is a loan that provides money to small business owners. This money is used to fund the business' operations. Many small business owners obtain small businesses when they first open their companies. Others also obtain them to help fund a company that already exists. 

How do I get a loan for a small business?

You can get a loan for small business through an online lender, traditional bank, or credit union. You can apply for a loan and you typically need to provide a business plan, proof of assets, and business or personal credit score. Each lender will have different requirements.

What are the best small business loans?

This will depend on your financial background. In the modern world of finance, you can choose between banks, credit unions, and hundreds of online lenders or peer-to-peer lenders. You have plenty of options at your fingertips, just make sure that you choose someone your eligible for.

How do you qualify for a small business loan?

This will depend on the lender that you're working with. Most lenders will want a business plan, assets, and a deposit on the loan. In some cases, they may also need a business credit score – some will allow you to use your personal credit score if you don't already have a business credit score.

Is it hard to get a business loan?

It depends on how good your business is and the lender that you choose. If you shop around for a loan and have decent financial history, you should be able to get a business loan. Just make sure you have a solid business plan if you're looking to borrow a lot of money.

What do I need to get a business loan?

To get a business loan, you will typically need as much financial information as possible. You may also need a business plan and a solid credit score. The more you're looking to borrow, the more you'll need to obtain a loan!

How can I get a business loan without collateral?

Some traditional lenders will offer you a loan without collateral if you have a good credit score. Additionally, some online lenders may be willing to lend to businesses that don't have any collateral.

Do you need money down for a business loan?

This depends on the type of business loan you're looking for. If you're looking for an SBA business loan, you'll need to put money down. Other types of loans will depend on the lender's preferences and requirements.

Can a lender see my business credit?

Yes, a lender can see your business credit when you apply for a loan – you normally have to give them permission to check your business credit score when you apply for the loan.

What do lenders require for a new business?

For a new business, you'll most likely need to submit a business plan, personal financial records, and your personal credit score. This is because they don't have any business data to go off. You may be able to use a past business as supportive data if you own multiple businesses.

Why lenders look at current debt ratio for small business?

The current debt ratio helps lenders understand the health of a business. If a business has too much debt, they won't be able to satisfy their debt repayments, which means they won't be able to function as a business.

What business lender will lend to sole proprietor?

Most business lenders will lend to sole proprietors if you can prove that you have a solid business plan and financial record. Lenders care more about your ability to pay back the loan than anything else.

Why business plan is important to lenders?

Business plans are important to lenders because they help the lender understand if you'll be able to pay back your debt. If you don't have a solid business plan, there's a high chance you will go out of business. This is too risky for lenders.

Can I get a business loan with a 500-credit score?

It might be hard for you to get a business loan with a 500-credit score. Your best chance will probably be to try and secure the loan against an asset that you own.

How do I get a loan to start a business?

There are a variety of different ways to get a loan to start a business. If you're looking to start a business, you can contact credit unions, online lenders, and traditional banks for loans. Make sure you have a business plan and personal financial data to show your lender. Then you can begin to apply start up business loan offers.

How can I get a small business loan with bad credit?

It can be hard to get a small business loan with bad credit. The best way to do it is to look at online lenders or consider offering collateral for the loan. Secured business loans are much easier to obtain.

What is a business lender?

A business lender is a lender that provides capital to businesses. This is a vital component of the economy and helps small and large businesses achieve their goals.

What is small business lending?

Small business lending is the process of lending money to small business owners. These business owners then use the capital to fund their businesses and achieve growth.

How do business loans work?

Small business loans provide small business owners with the capital they need to start or operate a business. Once a small business loan is approved, money is then transferred to the small business owner.

What do you need to qualify for a business loan?

This will depend on the lender. Most lenders will want decent financial records, strong credit scores, and a solid business plan if you want to borrow a large amount of money. If you're looking to borrow a small amount of money, the requirements may be much less.

What is the difference between a lender and a borrower?

A lender is someone who provides money for individuals or businesses. They then receive interest on the money the loan. A borrower is someone wh
o borrows money from lenders. They pay the lenders interest for the money they borrow.

Traditional Bank Small Business Lending

Here are some questions we receive about traditional bank small business lending. Check them out below!

Which banks give small business loans?

Most banks will have a small business loan program to help small business owners obtain the capital they need to grow their businesses.

Are banks lending to small businesses?

Yes. Most banks, credit unions, and online lenders provide capital to small businesses. It's typically one of their primary forms of lending.

Does a bank give a loan for business?

Yes. Most of the time, traditional banks will provide loans to businesses in their communities. In fact, with some larger banks you can receive business funding online, even if a branch is not nearby.

Can a mortgage lender also give loans to businesses?

It depends if they're will to provide business loans. Many banks and financial institutions that provide mortgages also provide small business owners with loans to start businesses.

SBA Loan

This section is dedicated to questions about SBA loans. Check them out below!

What banks offer SBA loans?

Most traditional banks offer SBA loans – they're a reduced risk loan option for the banks. This is because the national government guarantees a certain portion of the loan to help encourage economic growth.

What does SBA guarantee mean?

An SBA guarantee is a guarantee by the Small Business Administration to guarantee SBA loans for lenders. This means that if you default on the loan, the SBA will pay the lender a portion of the loan to reduce their exposure. It's in place to help small business owners obtain loans.

Do SBA loans require collateral?

It depends, but most of the time you will not need to put up collateral for an SBA loan. This make an SBA loan an even more attractive option!

How much of a down payment do you need for an SBA loan?

Most SBA loans will require you to put a 10% down payment on the loan. You'll need to make sure you've saved enough money to apply.

Other Small Business Lending FAQ

This section contains the rest of the questions we receive about small business lending. Check them out below!

Can business lender take cash?

This will depend on the business lender that you're working with. If you want to use cash, you should speak to them about their payment options prior to making any further agreements.

How to choose a business lender?

You should look at what they have to offer your business. Assess the interest rates and total cost of the loan. You should then ensure that you're eligible to apply for the loan. Next, check their customer satisfaction ratings to see if their past clients enjoyed their services.

Does a lender ask you to personally guarantee loan starting business?

This will depend on the lender and the type of business loan you're applying for. Make sure to discuss the specifics of the loan prior to making any agreements with your lender. Don't go into a loan not knowing the terms.

What to wear to meet a business lender?

There's no set dress code for meeting with a business lender. But you may want to ensure you look professional and serious. You don't want to give off the wrong impression of being disorganized.

How to prove personal business income to lender?

To prove personal business income, you should bring all your financial statements and information to any meeting you have with a business lender. Online lenders will most likely allow you to upload these documents.

What is the best business lender for business?

The best business lender for business will depend on what you're looking for. You should always work with a lender that offers decent interest rates and flexible payment options. You should also make sure to check consumer watchdog groups before you sign any contracts. There are some horrible business lenders on the market – don't work with a lender that has a bad reputation.

What is a standard size business plan for lenders?

The standard size business plan for lenders will depend on the lender that you're working with. The general rule is that your business plan should be between 30-50 pages. This gives you the best chance to fully display how much research you've done into your niche and particular business strategy.

What if your lender is out of business?

If you're lender goes out of business, you won't be able to escape from the debt. Someone else will most likely take over the loan and you will need to repay them the money that you owe. Don't assume that if your lender goes out of business you don't have to pay back the money.

How lending business works?

The lending business works by providing capital to business owners in exchange for interest on the principal amount that is loaned. Lenders will typically charge borrowers an annual percentage interest rate for the money they loan to the borrower.

What is p2p business lending?

Peer-to-peer lending is a form of lending that provides capital via an investor and borrower network. Instead of borrowing money from a traditional lender, you're actually borrowing money from investors who seek a return on their money. These investors then receive their return via your interest. Peer-to-peer lending is a good option if you don't think you'll qualify for a regular loan. Keep in mind, some of these lenders charge much higher interest rates.

What lenders need to see when buying an existing business?

Lenders will want detailed financial information of your personal or business accounts. They'll also want a personal or business credit score. You may also need to provide a business plan if you plan on borrowing considerable amounts of money.

How can I get a small business grant?

To get a small business grant, head to for a full list of grants provided by the US government. There are plenty of grants depending on your background and industry. You can also find other private grants from a variety of different companies or private organizations. Some may come in the form of a competition. You should also check with local NGOs – they sometimes also offer business grants to certain applicants.

How can I raise money for my business?

If you'd like to raise money for your business, you can consider financing, grants, and investment from outside sources. Many business owners use a combination of these three funding forms to fund their businesses.

Anne Miller

Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.


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