What is a Small Business Loan?

Lack of working capital and other cash flow woes are the most common problem reported by small business owners, especially when they’re planning for growth. Many enterprises face up-front costs before the anticipated income starts rolling in, but what can you do to kickstart your growth if you don’t have cash-on-hand to fund your ambitious plans?

That’s where small business loans come in.

The word “loan” can be a turn-off for many small business owners, especially if you’re an established business and have settled into a comfortable working rhythm with steady profits every month. But small business loans are nothing to fear—in fact, they can have a significant impact on your business’s bottom line.

A lot of anxiety around small business lending stems from simply not understanding the terminology or how small business funding works. We’ll explore different types of small business loans in a later section of this guide, but here, we’re going to focus on the basics—what is a “small business loan”?

It’s actually pretty simple.

A “small business loan” is initiated when a borrower—typically you, the business owner—borrows a sum of money from a lender (such as a bank, or an alternative lender like Greenbox Capital®). The sum of money that you borrow is based on an agreed-upon set of pre-specified terms for repaying the principal of the loan plus interest over a period of time.

In other words, if you own a business and borrow money from a lender on behalf of your business with a promise to pay it back, you’ve taken out a small business loan.

Small business loans are typically available from three sources:

1. A bank or credit union: This is the most traditional source of capital. Banks and credit unions are particularly well known for providing term loans. They are a good option for most businesses, but typically have higher, less flexible qualification criteria, and most applicants are rejected.
2. Small Business Association (SBA): “SBA loans” are technically provided by a bank, but they are guaranteed by the Small Business Association. This helps reduce the lender’s risk and encourages lenders to approve more loans for small businesses. SBA loans generally have the best terms, but they are the hardest to acquire, sometimes taking months for approval.
3. Alternative Lenders: Also known as “online lenders”, alternative lenders like Greenbox Capital are often ideal for shorter term funding, as well as for applicants traditional banks won’t approve, such as businesses with low credit. These lenders offer a number of small business loans with flexible terms based on your business’s history and potential.

There are many different types of small business loans, each with their own set of terms and qualifications. We explore them in more detail in this guide, but here’s a quick overview to get you started: