Should you get a small business loan? Each business is unique. So, there’s no single, universal answer to this common concern. However, we can examine some important questions, whose answers can help you make the best decision for your situation.
What is a Small Business Loan?
A small business loan works just like personal credit, only it’s intended to help you grow your business. For a new business, you will still personally guarantee the loan, but you will have to qualify based on your business’s health and your ability to demonstrate how the money will make your business more profitable and stable.
Though they are conceptually similar to personal loans, you can expect to see a few differences with small business loans:
- You can get a small business loan for far more money than for most personal loans short of a mortgage
- You may pay more interest, and possibly higher fees, than you would for a comparable personal loan
- The application process can sometimes be more detailed and time-consuming
How Can I Use a Small Business Loan?
Don’t think of small business loans as a credit card, which you use for convenience or to buy something today that you can’t really afford until tomorrow. Think of small business loans like student loans: specific investments that will make you more money than you paid in interest once you’ve leveraged what you buy.
By making this kind of investment, you can make more money sooner. This process can help you grow your business’ profits and income. In comparison, a small business loan is much like a student loan.
You borrow and spend the money during college so your salary post-graduation is high enough to justify the expense and interest. With a small business loan, you borrow and spend the money one year to make more money moving forward through the next several years.