Business loans debunked: Your top questions answered

It takes hard work to start a business – and money. You could fund a business with credit cards, draining your savings, or taking out personal loans – but there are other ways like small business loans.

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Starting a business takes grit, a great idea, and a lot of hard work. It also takes money. You could fund a business with credit cards, draining savings, taking out personal loans, trying to crowdsource, or secure venture capital – there is another way.

A business loan from your local bank can be an affordable, flexible way to fund your business.

Let’s talk about the benefits of a business loan, the different types of business loans available – including SBA loans – and what steps you can take to acquire a business loan.

Is it bad to take out a business loan?

Let’s start with a worry many business owners have – that taking a loan is a sign they’re flailing or the business is flailing. Not at all! Like a mortgage or student loans is an investment in your future, a business loan can be “good debt” when done responsibly and with a trusted lender. 

A business loan or line of credit can help you:

  • Launch your business and get your idea off the ground 
  • Expand your business – new locations, new products, new services
  • Bridge seasonal cash flow gaps that are a part of many industries or sectors
  • Recover after a disaster or emergency

Financial history is one element a lender might consider, but there are loans designed for new businesses. The SBA also offers loans specifically for people starting small businesses.

What is the SBA?

The Small Business Administration (SBA) is a federal agency dedicated to helping small businesses. The SBA provides advice, advocacy — and money! – to small businesses to help them start, grow, expand, or recover.

What are the benefits of an SBA loan?

Three of the benefits of SBA loans we hear from business owners include:

  1. It is usually easier to qualify for an SBA loan than other types of loans

  2. An SBA loan typically has a lower down payment requirement

  3. Competitive interest rates and longer maturity periods offer flexible terms

Are there different types of SBA loans?

Fremont Bank offers two types of loans guaranteed by the SBA – an SBA 7(a) and an SBA 504 in loan amounts of $250,000 or greater. 

An SBA 7(a) loan is an option for more general purposes and can be used to:

  • Start up a new business

  • Buy a business

  • Expand a business

  • Purchase real estate

  • Refinance existing business loans

  • Obtain working capital

  • Use for a capital expenditure

An SBA 504 loan is for long-term asset purchases including:

  • Commercial real estate financing

  • Purchasing land or buildings

  • Funding improvements to facilities or equipment

  • Ground-up construction

We’ve seen the power these loans can have for small businesses and are proud to be a top Bay Area SBA lender. Get to know Eric Ng,  our dedicated specialist on SBA loans.

Are there other sources of funding besides SBA loans for a small business?

Absolutely! Business term loans, real estate loans, and business lines of credit are all available options for small businesses that can help avoid taking money out of personal savings or racking up credit card debt with higher interest rates.

What’s a business term loan?

If you’re a small business owner who needs a higher loan amount but you also put a premium on predictable monthly payments, a business term loan is a traditional financing choice you may like.

With a business term loan you can:

  • Borrow a lump sum of money

  • Use it for purchasing inventory, buying equipment, or refinancing debt

  • Pay it back in set installments over a set term

  • Enjoy some of the lower interest rates available, depending on terms

What’s a business line of credit?

Known for their flexibility, business lines of credit are popular because they are a flexible way to create a financial safety net via secure, short-term financing. 

With a business line of credit, funds are accessible if and when you need them. Interest payments are only due on money you use.

By creating a predetermined revolving line of credit, you’ll have funds to:

  • Improve cash flow consistency during seasonal or cyclical shortages

  • Close short-term gaps

  • Help solve with inventory management needs

What’s a commercial real estate loan?

If your small business uses a physical location: a retail space or restaurant, an office or office building, a warehouse or industrial space, you may consider a commercial real estate loan.

A commercial can help a small business:

  • Expand or renovate an existing location

  • Add a location

  • Fund a relocation

  • Refinance debt

Fremont Bank offers fixed and variable rate commercial real estate loans with flexible terms.

What do I need to apply for a small business loan?

The required documents and materials can vary based on the lender and the type of loan, but this Business Loan Checklist is a place to start! If you have questions, you can reach out to our Small Business Specialists who are eager to help.

Business Loan Checklist 

  • Bank statements

  • Business credit report

  • Tax returns

  • Proof of business registration

  • Accounts receivable and accounts payable aging reports

  • Proof of collateral

  • Business plan 

  • Information regarding your legal structure

  • Required business licenses and permits

  • Personal tax returns

  • Personal financial statement including real estate schedule

  • W-2 and/or paystubs

  • Personal bank statements

Why should I take out a loan with a local bank?

Small businesses are the heart of thriving communities and when you succeed, we succeed. Fremont Bank is in the business of local small businesses, so we ensure you’ve got access to the right kinds of business loans and advisors who are ready to help you understand your options. Local banking experts can offer insights on the community and small business environment you can’t get anywhere else.

Curious about what that looks like? Hear from the brothers who opened Beer Baron – and then grew it to four locations – about what financing a loan with us is like.