How Do Small Business Loans Work?

Small business loans provide funding from lenders that businesses repay over time with interest. The process usually starts when a business owner applies for a loan based on their financial needs, credit profile, and business performance.

After applying, the lender reviews factors such as credit score, business revenue, cash flow, time in business, and purpose of the loan. If approved, the lender offers loan terms including loan amount, interest rate, repayment period, and monthly payment.

Once the loan is disbursed, the borrower repays it through fixed or flexible installments. Some loans require collateral (like equipment or property), while others are unsecured.

Lenders can include banks, online lenders, credit unions, or government-backed programs like those supported by the Small Business Administration.