How Do Small Business Loans Work?

How Do Small Business Loans Work?

Raising money for a business is never easy – that’s why small businesses are often reluctant to take on debt. But there are ways to secure financing without taking on risky debts or ending up in bankruptcy court. In today’s economy, most entrepreneurs have no choice but to search for a new source of financing that enables their business plans to be realized. When they invest their hard-earned savings, they often make a risky gamble. If no other avenues are left, this can mean bankruptcy and the loss of their business. As a pain management specialist, Dr. Jordan Sudberg knows firsthand how difficult it can be for new entrepreneurs to find funding for their business ideas. Instead of worrying about how he could get his business off the ground and survive, he finally learned about other options – including high-risk loans from financial institutions that often work against the interests of small businesses.

How Do Small Business Loans Work?

Dr. Sudberg explains how small business loans work. The journey of starting a new business is fraught with all kinds of challenges, even before you raise any money to get started. Your idea needs to be developed and tested; the land must be found and occupied; The list goes on and on. Office space has to be established; employees have to be hired; contracts and legal documents have to be drawn up. A lot happens before you can even focus on raising the capital required for this enormous endeavor.

A small business loan is almost always structured in much the same way. The lender puts up part of the capital while the entrepreneur invests their funds into the business – often in exchange for interest-bearing notes. If the business fails to repay the loan on time, the lender may take back all or part of the money.

How It Works – in Concrete Terms

Let’s say you have a business plan and decide to raise money from someone you know as a lender. You will want your business to succeed so that it does not fail – both because you would lose some or all of what you invested, and there would be no one else to replace you. The lender will offer a lower rate of interest than usual – sometimes as low as zero percent – and they may require that your business repay the entire amount borrowed at any time within one year.

How It Works – in a Nutshell

Dr. Jordan Sudberg explains that typically, the lender will give you a percentage of the money you need to complete your business plan. You will then pay them back over time or in whole. If you cannot make the payments, the lender can take your business and sell off all its assets to recoup its losses.

You may think a small business loan is nothing more than a gamble, and you may be afraid to take it on. But if it was just a roll of the dice, it should be pretty easy to understand how a small business loan works in the first place. You don’t have to be an accountant or a lawyer, but you need to understand the basic commercial terms of your finance agreement. If you want to review these terms before signing up for one, contact us by filling out this form.