Small business loans: the what, and pros and cons
Small business loans give you a lump sum upfront, which you can use to cover different business expenses. Whether you’re launching a new venture, buying equipment, or expanding your operations, a business loan provides the financial support you need to take big steps forward.
Loan amounts can range from thousands to millions of dollars, depending on the loan type, often surpassing the limits of business credit cards. The repayment term can also range from as little as three months to a term of up to 10 years (up to 25 years for SBA loans), with daily, weekly or monthly payments that include interest.
If your business requires a large injection of capital or a long repayment period, a small business loan is often the go-to solution.
While some loans may require collateral, others can be unsecured, which often requires a personal guarantee.
Pros
Small business loans come with several key benefits that can help business owners get the capital they need without sacrificing control or flexibility.
Access to large amounts of capital
Secure larger amounts of money upfront compared to business credit cards. This makes business loans ideal for big investments like purchasing equipment, expanding operations, or covering large overhead costs.
Flexible repayment terms
You can choose a repayment term that works best for your cash flow, with options ranging from short to long-term. Fixed daily, weekly or, with long-term loans, monthly payments, make budgeting easier, so you know exactly what you owe each month and can plan ahead.
Favorable rates
Small business loans often come with lower interest rates than credit cards. Depending on your creditworthiness and financial health, you could lock in a competitive rate—and this could help you save in the long run.
Retain full ownership
Small business loans don’t require you to give up any equity. You keep full ownership and control of your business while still getting the funds you need to grow.
Build business credit
Taking out and responsibly repaying a business loan may help you build your business credit. This sets you up for future financing with even better terms.
In summary, small business loans offer flexible solutions to help you manage larger expenses, keep your operations running smoothly, and position your business for long-term success.
Learn more about your financing options: |
Cons
While small business loans can be a great option for securing larger sums of money, there are some things you should keep in mind.
Harder to qualify
If your business is still in its early stages, qualifying for a business loan can be a challenge. Lenders typically require at least 6 months in business, which may not be the case for newer ventures. To qualify for the best rates, business owners will also often need established credit histories and strong financials.
Collateral risk
If your loan is secured, you will have to put assets—like property or equipment—on the line. If your business hits a rough patch, you risk losing those assets.
Personal guarantees
Regardless of whether the loan is unsecured, creditors may ask for personal guarantees. If you need a personal loan at a later date, you may find it difficult to get the loan.
Limited flexibility
Business loans offer a one-time lump sum. If you need additional funds in the future, you’ll have to submit new documents.
Business credit cards: the what, and pros and cons
Business credit cards offer a flexible way to access funding on a revolving basis— you can tap into funds as needed rather than taking out a lump sum. This is ideal for managing smaller day-to-day expenses or covering short-term cash flow gaps.
Business credit cards are available to companies of all sizes, making them an accessible financing tool for startups and established businesses alike. These cards generally require a good credit score (typically 670 or higher) and proof that your business can manage payments.
Pros
When it comes to business financing, business credit cards offer a number of benefits that can give your business more flexibility and control.
Flexible access to funds
Business credit cards operate on a revolving basis, meaning you can access funds whenever you need them without the hassle of reapplying. Pay your balance in full each month, and you avoid paying any interest—a major perk for managing short-term cash flow.
Rewards
If you have a business credit card with enough available credit, you could buy what you need on the card, then pay it off at the end of the month with the loan proceeds. This way, you could get 5% back on credit card rewards.
Build your business credit
Using a business credit card responsibly helps you build business credit, which is essential for securing future financing, such as loans with better terms.
Expense management
A business credit card makes it easier to track and manage expenses, keeping your business and personal finances separate. This separation simplifies accounting and tax prep, and many cards offer features that allow you to monitor employee spending.
Higher credit limits
Compared to personal cards, business credit cards typically offer higher credit limits, giving you more purchasing power when you need it most.
Whether you’re looking to manage cash flow, rack up rewards, or build your business’s financial history, a business credit card offers many benefits.
Cons
While business credit cards offer flexibility and rewards, there are also some downsides to consider. Here’s what you need to watch out for.
Impact on personal credit
One of the biggest risks with business credit cards is how they can affect your personal credit score. Many card issuers report your account activity to the major consumer credit bureaus. If you miss payments, it could hurt your personal credit, not just your business credit.
Higher interest rates
Business credit cards tend to carry higher interest rates than traditional loans or personal credit cards. If you don’t pay off your balance each month, interest can quickly add up.
Risk of debt accumulating
Interest builds up fast if you carry a balance month to month. It’s important to use credit cards for purchases you can pay off quickly.
Business loan vs. business credit card: Comparison at a glance
Small business loans | Business credit cards |
Pros | Pros |
– Access to large amounts of capital upfront. – Fixed repayment terms, making budgeting easier. – Lower rates compared to credit cards. – You retain full ownership—no need to give up equity. – May help build business credit. | – Flexible access to funds on a revolving basis. – Pay in full each month to avoid interest. – May build business credit for future financing. – Simplifies expense management and tracking.- Higher credit limits compared to personal cards. |
Cons | Cons |
– Harder to qualify, especially for startups. – May require collateral or personal guarantees. – Limited flexibility—requires requalification for additional funds. | – Higher interest rates than loans. – Can impact your personal credit if payments are missed. – Risk of accumulating debt if not managed carefully. |
Which should you choose?
Should you get a credit card for your small business? What about a business loan? Deciding between the two depends on what you need the financing to accomplish.
Choose a business loan if:
- You need significant capital for big investments like expanding your business or buying equipment.
- You want fixed payments and a clear repayment schedule to make budgeting easier.
- You’re planning a larger project and need the financial stability of a lump sum with lower rates.
Choose a business credit card if:
- You need flexible access to funds for managing short-term expenses or day-to-day operations.
- You want to build your business credit while maintaining control over spending.
- You prefer revolving credit that gives you access to capital whenever you need it, without the hassle of reapplying.
How to work with an alternative lender to get the financing you need
Need fast, flexible financing? Alternative lenders are built to get you the capital you need—without the long waits and complicated processes.
- Fast funding, quick decisions:
Need funds now? With alternative lenders, approvals happen fast—sometimes in as little as 24 hours. Whether you’re looking for a lump-sum loan or a revolving line of credit, you’ll have access to the cash you need when you need it. - Easier to qualify:
Even if you don’t have a perfect credit history, you’re still in the running for financing. Alternative lenders look beyond the credit score to determine eligibility for financing. - Flexible financing:
Whether you need a large chunk of capital for growth or a revolving credit line to manage everyday expenses, alternative lenders give you both options. A loan helps you fund big moves, while a line of credit lets you tap into funds when you need them. - Personalized for your business:
Alternative lenders work with you to find the best-fit financing. Need cash for a big expansion? Or are you looking at changes across multiple areas? They’ve got you covered with solutions that fit your unique business needs.
Access business loans to cover costs for anything from major investments to day-to-day expenses. It’s quick, easy, and designed to help your business thrive.
