How do Business Loans Work?

Business Loan
If you have ever attempted to borrow money as a consumer you probably have a fairly good idea of how a loan works. However if you have not yet attempted to acquire funds for your company then there may be some additional criteria which you are not familiar with. I will attempt to outline some of these criteria in order to give you a better understanding of what to expect when attempting to acquire funds for your company.

Business loans work in a somewhat similar way to personal loans in that you will be charged principle plus interest which is typically divided up into equal monthly payments. Although there are other ways to structure repayment this is the most common way. The way in which they differ is the requirement to demonstrate your ability to repay the loan. Whereas with a personal loan your credit score and income will be the true driving factors there are some additional factors when it comes to acquiring funding for your business.

First of all traditional lenders will want to have a good since for your business history. They will want to look over financial reports for the last 10 years in order to see how viable your company has been in the past. This information is used to extrapolate your future viability. Additionally they will look at your current accounting sheets to see if your short term profitability has differed drastically from that of the past. In other words they want to look at your present in your past in order to make a prediction about your future.

Just like with a personal loan you will be required to demonstrate a good credit history. Although you may not know this, your business has a completely separate credit report from your own personal report and it has its own score as well as report items. If you have not gone out of your way to build this report then you will have difficulty obtaining a loan from a traditional lender. One exception to this rule is attempting to acquire loans which are specifically designed for new and small businesses and if you are looking for a loan of this type I recommend that you reach out to the local chapter of the small business administration for assistance.

So in essence business lenders look to see your financial liability through your business history, your current business metrics, and your business credit. If all three of these factors look good then you will likely be able to obtain funding in this way.

For more information, go to business loans at

How do Business Loans Work? was last modified: November 12th, 2013 by Amit Kraidman
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One Response to How do Business Loans Work?

  1. Henrietta says:

    That’s way the betsset answer so far!