A small business loan is awarded by a type of financial lending institution–typically a bank–to companies that are usually start-ups, privately funded, or small to aid in their daily functions and their future prospects. To succeed and carry out their intended functions, small businesses must have a substantial amount of capital.
Hiring employees, renting office space, and providing the service that the company performs all requires assets and capital. It is unlikely that the person or a person starting the small business has a surplus of cash. That being said, a start-up company will seek out a lender or bank to initiate a small business loan.
Small business loans are capital awarded to the company. The small business loan must be repaid by the company over a specified period of time and under a specified amount of interest. Through the acquisition of a small business loan, the start-up company receives the necessary funding to initiate their business model. At the same time, through the inclusion of interest the lending institution makes a profit through the loan because the money paid back at the end of the loan period will surpass the amount of the loan.
The specifics associated with small business loans are varied based on the company’s profile. When reviewing the company’s specifics, a lending institution will review the credit history, the income profile, and the overall soundness of the small company’s business plan. All of these factors will determine the interest rate and length of the small business loan.
In addition to a financial institution, a small business can also seek a loan through the Federal Government. Government small business loans are available to entrepreneurs seeking to start a small business. All small businesses are eligible for the various types of Fovernment small business loans available.
Government small business loans are structured similarly to a basic loan; the Government works with lending institutions to provide loans and capital financing to small businesses that are unable to secure financing through other channels–i.e. venture capital funds and investors.