Basic Guideline for Getting a Business Loan in USA

Starting up a business isn’t as easy as many people think. While many constraints can arise on the path, the biggest one is always regarding finance or cash. One may have the best business ideas, but without the adequate money, she/he can’t implement those ground-breaking ideas.

The United States of America, as we all know it, is the land of opportunities. One can make a lot of money by selling goods or services that are unbeknownst in other countries. And in almost every case, business loans are a must when it comes to starting a new venture.

However, the right type of business loan and strategy to pay them off remains the crux of a successful trade. There are mainly three types of business loans in the USA: loans provided by the government, classic bank loans and loans from alternative lenders.


Choosing the type of loan remains the most integral part as it plays a huge role in deciding the fortune of the business. There are some key factors that needs to be considered when selecting the type of loan one wants to take, some of them include…

  • The amount of money to be borrowed
  • The time-frame of return
  • The financial, as it is, of the business or you
  • Experience in business
  • The need for money

Based on these points, one can determine the type of loan she/he needs: a government backed SBA (Small Business Administration) loan, a bank loan or a loan from a lender.


Small Business Administration loans

Out of the three, this one is the hardest to obtain as it is the most favorable to borrowers, and, as the saying goes, it is the best things that is the most difficult to acquire. The SBA has a wide variety of loan programs that satiates the needs of even more diverse types of business organizations.

The government doesn’t unswervingly impart money to small businesses. Instead, however, the SBA gives procedures for loans made by its partners, which include banks, community development organizations and micro lending institutions.

One of the best parts about SBA is the variety it provides to the borrowers. One can choose from a range of loans, each of which comes with its own terms and conditions on the usage and payback of the money. However, a lot of paperwork is involved to obtain the loan.


The SBA, as of now, provides 4 types of loans:

Microloan programs:

As the name already suggests, these are loans of relatively small amounts that are handed out to new or growing businesses. The upper limit for such a loan is $50000, while the average is an estimated $13000. These loans can only be used to purchase things that are needed and not to repay debts or purchase real estate.

The pay back scheme depends on several things, like the amount of money borrowed, plan on usage, and so on, but the underlying factor is that the maximum type allotted to pay back is up to 6 years.

7(a) Loan Program:

If you want to open a startup but aren’t sure where to acquire the funds from, then this is where you should be looking at. The primary purpose of this loan program is to allot funds to startups and existing small business. They are the most common type of loans and are incredibly flexible.

Up to $5 million can be lent in this scheme and the borrowers can apply via a participating lender. A variety of business purposes can be obtained by these loans, some of them are: equipment, working capital, buying land or buildings as well as renovating them and so on.

If the loan is for working capital, then the payback time could be up to 10 years and 25 years is the case when it comes to fixed assets.

Real estate and equipment loan:

Also known as CDC/504 Loan Program, this scheme allows to borrow money for major assets like lands and buildings. One can purchase land, renovate buildings or refinance debt in connection with an expansion of business. However, they can’t be used for inventory or working capital.

These loans are structured in such a way that 40% of the total project cost is covered by the SBA, 50% by the by a participating lender while the rest is for the borrower to conjure. The maximum that can be borrowed under this scheme is $5 million with 10 to 20 years of maturity time.

Disaster loans:

As the name suggests, this is a scheme that helps with disaster-relief in the form of loans that comes with very small interest rates. If land, buildings or inventories were destroyed in something that was declared as a disaster, then these loans are provided to repair or re-buy them. Qualified businesses could be selected for getting a business loan of up to $2 million in disaster loans.


Conventional Bank loans

Lend at your risk would be the appropriate way to describe conventional bank loans. While banks work as sources for SBA when it comes to lending money, they also do the same as independent agents. However, government guarantees the bank that it will get its money back while participating as SBA lenders, but the same privilege is unavailable when they hand out loans on their own accord.

The freedom one gets on what one can do with loan money is more here than SBA loans, plus it the paperwork required here is a lot less complicated SBA loan. Also, the interest rates are slightly lower and the loan is received at a quicker rate given the government’s involvement is null. However, the repayment time in this scheme is shorter than with SBA’s.


Alternative Lenders

They are best for people who want loan quickly and don’t have a financially strong base to cover for them. Most startups use this scheme in order borrows money for their finances aren’t stellar and need the money as soon possible.

However, the downslide of this scheme is that the interest rates are usually higher than SBA and Bank loans since they are sourced by private lenders, who are more interested in garnering the maximum possible profits for themselves than helping the borrower with her/his business.

Bank and Alternative Lenders provides some types of loan than the SBA don’t provide, some of them include:

Equipment loans:

Banks and Lenders have their own of equipment loans. They provide for office equipment like computers, printers and so on. There is no down payment for such loans and they really easy to obtain as the equipment being purchased works as a collateral. Also, they allow for the borrowers to pay monthly basis instead of large upfront payments.

Merchant cash advance:

The loan given in this scheme is based on a business’ monthly credit card transaction. An advance of up to 125% of the monthly transaction value could be received by firms by the use of this scheme. People with strong credit card sales are the most likely to get the loan.

The repayment terms vary from lender to lender. Some take fixed amount of money from the businessman’s account while others take a percentage from daily credit card sales. It is very easy and quick to obtain. However, the interest rates are very high.

Working Capital loans:

These are short-term loans that the business needs in a state of emergency in order to continue their operations. Bills like inventory and such can be paid from this loan and ventures that need that need ways to increase their revenues while running their operations smoothly are best suited to this. However, their interest rates are generally high and with short repayment time.

Lines of Credit loans:

Similar to working capital, they are best in short-term day-to-day scenarios. However, the key thing here, which makes them advantageous, is that you only pay an interest amount that is simultaneous to the amount you borrow—something that allows flexibility. The biggest disadvantage, however, is that there is a lot of additional fees charged which puts businesses in a danger of being highly indebted.

Franchise start-up loans:

The name gives away the whole story. This is a loan that is provided to entrepreneurs to help them setup their franchise business. From buying equipment, to paying franchise fees, this scheme can be used to cover these bases.

Professional Practice loan:

These are handed out to providers of professional services, like business in health care, accounting, veterinary, engineering and so on. They are mainly used for buying real estate or purchasing a practice or buying new equipment or renovating office and so on and so forth.


Concluding, these are the basic things that one must know before trying to obtain a business loan. From galactic organizations to roadside food cart, each and every type of business has a specified loan scheme that suits it best.

Aspiring entrepreneurs looking to create a startup or experience business-heads with established firms can all apply for loan deal that fulfills their requirement. A thorough research of their own needs coupled with the types of loans that are available is the key to success.

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