Business credit should be designed around cash flow. A short-lived need funded with very long debt can become expensive; a long-lived asset funded with a payment due too quickly can create a cash crunch.
Define the use and repayment source
Specify exactly how much is needed, when it will be spent, and how the investment will generate or preserve cash. Build a base case and a downside case. A lender’s approval does not replace a cash-flow forecast.
Common structures
- Term loan: lump-sum funding repaid on a schedule.
- Line of credit: reusable access up to a limit, often for seasonal working capital.
- Equipment financing: credit tied to an asset that may secure the loan.
- SBA-guaranteed loan: made by a participating lender with an SBA guaranty.
The SBA’s 7(a) program can support uses including working capital, equipment, real estate, refinancing eligible debt, and ownership changes. The 504 program is oriented toward long-term fixed assets. Microloans are offered through intermediaries for smaller needs.
Read beyond the rate
- Personal guaranty and collateral requirements
- Origination, packaging, broker, and guarantee fees
- Prepayment provisions
- Financial reporting and insurance requirements
- Covenants and default remedies
Prepare the story in numbers
Lenders may ask for business and personal financial information, tax returns, bank statements, ownership details, projections, contracts, and a plan for the proceeds. Reconcile the numbers before applying.
The right business loan finances a defined use, has payments supported by conservative cash flow, and leaves the company able to absorb a slow season.