Types Of Business Loans 

Terms of loans vary from lender to lender, but there are two basic types: short-term and long-term. Generally, a short-term loan has a maturity of up to one year. These include working capital loans, accounts receivable loans, and lines of credit.

Long-term loans have maturities greater than one year but usually less than seven years. Real estate and equipment loans may have maturities of up to 25 years. Long-term loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc.

SBA loan programs are intended to encourage long-term small business financing, but actual loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: twenty-five years for real estate, up to ten years for equipment (depending on the useful life of the equipment), and generally up to seven years for working capital. Short-term loans are also available through the SBA to help small businesses meet their short-term and cyclical working capital needs.

Read the SBA's "The Benefits of Making Your Banker Your Friend" 

How To Write A Loan Proposal

Approval of your loan request depends on how well you present yourself, your business, and your financial needs. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal. A well-written loan proposal contains:

General Information

• Business name, names of principals, Social Security number for each principal, and the business address
• Purpose of the loan - exactly what the loan will be used for and why it is needed
• Amount required - the exact amount you need to achieve your purpose

Business Description

• History and nature of the business - details of what kind of business it is, its age, number of employees and current business assets
• Ownership structure - details on your company's legal structure

Management Profile

• Short statement on each principal in your business -provide background, education experience, skills, and accomplishments

Market Information

• Clear definition your company's products as well as your markets
• Identify your competition and explain how your business competes in the marketplace
• Profile your customers and explain how your business can satisfy their needs

Financial Information

• Financial statements - provide balance sheets and income statements for the past three years. If you are starting out, provide a projected balance sheet and income statement.
• Personal financial statements on yourself and other principal owners of the business
• Collateral you are willing to pledge as security for the loan

Related Information 

Read the SBA's "How to Prepare a Loan Package"

Read the SBA's "Never Take No for an Answer - (When the Bank Says No)" 

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