Small Business Loans FAQ

Frequently Asked Questions about Small Business Loans

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What is a small business loan?

A small business loan allows business owners to borrow money for a variety of business-related purposes without the hassle of extensive paperwork or a lengthy approval process. The turnaround for obtaining money with online small business loans is quick, and some borrowers can receive money in as little as 24 hours from the time they submit their application. Many small business loans are unsecured with a fixed interest rate, although some require borrowers to sign a UCC lien or personal guarantee. You will be required to pay the money back in regular installments which factor in the added cost of the interest.

What can I use a small business loan for?

Small business loans can be used for a myriad of business-related purposes, including purchasing equipment, expanding your business, buying inventory, hiring employees and more. Some small business lenders have restrictions on how the money can be used or which industries it will lend to, so it's important to check this information before you apply to ensure you will be able to qualify.

What is peer-to-peer lending and how does it differ from traditional lending?

Traditional loans consist of a single financial institution loaning money to the borrower, while peer-to-peer lending allows borrowers to request and receive money from multiple people or entities. Usually these lenders are generally also customers of the lending service who contribute money as a form of investing. Most peer-to-peer small business loan services operate by having borrowers create a listing to request money, which prospective lenders read to decide if they want to fund the loan or not.

Will applying for a loan hurt my credit or my business' credit?

Requesting a rate quote will not affect your credit because the loan service will run a soft credit inquiry, rather than a hard one. This means you can feel free to shop around for quotes from more than one small business loan service before applying to receive one. However, keep in mind that if you do go through with applying for a loan, most services will conduct a hard inquiry on your credit at that time, which will be recorded.

What is the difference between a secured and an unsecured loan?

A secured loan requires collateral, such as a vehicle or property, as security to ensure repayment of the loan. An unsecured loan does not require any such collateral, but as a result, the APRs are usually higher since the lender is taking more of a risk on the borrower. Some small business loans require UCC liens for your business' assets as collateral, while others ask the principal borrower to sign a personal guarantee.

What is a UCC lien?

This is a lien created that follows the requirements of the Uniform Commercial Code (UCC), which is a collection of standardized laws on the contracting and trading of goods in the U.S. When you sign a UCC lien for a small business loan, you are pledging your business assets — such as property or equipment — as collateral for the money you receive.

What is a personal guarantee?

Loan services will request a personal guarantee from the business owner to secure the loan. This type of guarantee assigns personal responsibility for the loan to the business owner, meaning if the business cannot repay the loan then the owner will be responsible for doing so.

What is a fixed rate?

Loans with fixed interest rates do not change throughout the life of the loan. Whatever interest rate you are presented with when you sign the paperwork to accept your loan is the interest rate that will remain in place during your repayment period. Since the interest rate does not change, the lending service can accurately predict the amount of each payment from beginning to end.

What is an origination fee?

An origination fee is a fee charged by most small business lenders to cover the cost of processing your loan. It is usually 1% - 5% of the total loan amount you qualify to borrow, and it will be taken from your loan proceeds before they are deposited into your account. Some lenders offer borrowers with better credit lower origination fees. Be sure to factor the origination fee in when you request a loan so you can be sure the money you receive meets your needs.

Top Small Business Loans

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Bottom line: Peer-to-peer lending service offers a simple application process and competitive rates for business owners with fair or better personal credit
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Bottom line: Peer-to-peer lending platform with a special emphasis on military veteran loans; highly personal loan applications; good for established businesses with lower revenue
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Bottom line: Loans up to $500,000 for short-term or long-term growth; fixed rates with low APRs; seamless online application process; ideal for established businesses
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Bottom line: Best for established businesses with a steady cash flow; loans are secured with long repayment periods; quick and simple application process
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Bottom line: Variety of rate and term options; fixed-rate payments are daily or weekly rather than monthly; good option for newer as well as more established small businesses
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Bottom line: Flexible loan rates and terms with a high-tech application process; ideal for profitable businesses whose owners have good credit or better; customer service is lacking

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