The Good the Bad of Small Business Loans

If you have or want to start a small business, getting a small business loan will help ensure your success. While some people have the money to invest into their small business, many others do not have the capital available to allow their ideas to develop unless they get a small business loan. While it can be hard to get a small business loan, it can be done.

There is a risk involved with lending to people who are starting small businesses because the majority of small businesses end up failing within two to five years. As a matter of fact, when you apply for a business credit card, many places will require your business to have been incorporated for at least two to three years before giving you credit under your company's name. Now if you have good personal credit, especially if you have great personal credit scores above 750, it will be entirely possible for you to get a loan for your business in your own name. The problem with this is that the loan will appear in your personal credit report, which can help to bring down your personal score since it is a brand new loan -- even more so if you are ever late on it.

However, if this is the only way you can get capital for your business, it may be worth the personal score hit. Small businesses are becoming more common and, the more common they become; it will be easier for you to get a loan. Most major banks now give small business loans to their customers.

As a matter of fact, when you open a bank account for your business many will try to solicit you into applying for a business credit card or a loan. For those who cannot get a small business loan on their own, because they might be a little bit more risky for the bank, they can try to seek assistance through the small business administration (SBA). The problem is that many people do not understand how the SBA works. Many of them falsely believe that the SBA will actually lend you the money, which is really not true.

What the SBA will do for you, to help you obtain a small business loan, is guarantee that loan for the lender so that, if you default, they will pay the lender a percentage of your balance. The bad news is that this cannot guarantee you will get a small business loan. The reason is because many lenders will still assess how risky you are, since the SBA will often only pay a percentage of the loan -- which usually does not include the interest you may have incurred and any other fees. They know that if you pay the loan then they are likely to get all of their money, whereas they might have to settle with the SBA for a particular amount -- leaving them with little to no profits. In any event, seeking help from the SBA seems less risky, since they will have something to fall back on if you don't pay your small business loan or if your company goes down to the tubes. All in all, if you can get a small business loan, it can really help you grow and expand your business and will provide you with additional capital to help keep your cash flow open.

Just make sure that you don't take up a loan that is too large and you are unable to pay back, otherwise you could be end up spending all of your profit and leave none for yourself and your business.

Small Business Loans - There are a variety of shapes that small business loans come in. by Daniel Wesley

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