Benefits of a small business loan

Financing options, like a small business loan, could help your business weather challenging times or support opportunities for growth. Some benefits of small business funding could include:

Common uses for small business funding

Types of small business loans

Term loans 

A term loan provides a one-time lump sum to a business. Repayment for term loans is often done over a fixed period of time, with the borrower paying back the principal as well as the agreed-upon interest and any additional fees a lender may specify in the loan agreement. Term loans are often categorized by the lifespan of the loan: short, intermediate, or long.  

Borrowers may be required to reapply to receive additional funding, unlike some credit lines. Term loans may be an attractive option for borrowers with a specific project in mind. 

SBA loans 

There are several Small Business Administration (SBA) loan programs that offer different types of business loans and credit lines. The most popular program, SBA 7(a) loans, may offer up to $5 million in financing (accurate as of March 2025, please visit the SBA site to see what current offers are available for financing).  

SBA loans are partially backed by the federal government, and you'll need to apply for these loans from an SBA-approved lender. The SBA sets the minimum eligibility requirements, but lenders can also set stricter requirements for their loans.  

Line of credit 

A line of credit gives a borrower access to a flexible credit line that can be used as needed. With a line of credit, you draw individual loans from your line and can draw funds as needed up to your available line amount. You only pay interest or fees on the loan amount that was drawn.

Common uses for loans drawn on a business line of credit include addressing gaps in cash flow, offering signing bonuses to attract top talent, or ordering additional supplies to prepare for seasonal demand. 

Short-term loans 

Short-term business loans are installment loans that you generally have to repay within three to 18 months, sometimes with daily or weekly payments. The loan amounts may be smaller than with longer-term loans, as the funding is primarily meant to cover immediate needs. You may find these loans have higher interest rates and fees than other lenders’ long-term loans.  

Microloans are a type of short-term loan that, in the most basic terms, are loans of smaller dollar amounts that are often used to help small businesses or startups grow. The SBA’s Microloan Program provides loans with a maximum loan length of seven years.

Merchant cash advances 

A merchant cash advance (MCA) can offer quick financing that you repay with a portion of your sales. Generally, an MCA provider will assess your cash flow and how you accept payments.  

For example, some MCA providers might require you to accept credit and debit cards, as they can automatically collect a portion of those sales before the money hits your account, and some MCAs will accept automatic payments from your business bank account. 

Working capital loans 

A working capital loan can be used by a business owner to pay for everyday expenses. The name of the loan refers to how you use the financing, as your working capital is the amount of funds you have available to meet your short-term financial obligations.  

Equipment financing 

Equipment financing includes any type of loan designed to fund the purchase or repair of equipment. Businesses can choose to either lease or take out a loan for their equipment needs.  

Industry-specific loans 

If you are a business owner with industry-specific needs, like bulk orders of food or modern medical equipment, obtaining an industry-specific small business loan could help ensure that you have the small business funding to thrive within your industry. Lenders may offer industry-specific financing for construction, retail, professional services, restaurants, and more.  Remember to check the terms set within the loan agreement to understand the use of funds when applying for any financing.  

Small business loan application and approval process 

A small business loan application process can often be completed online, eliminating the time typically spent waiting in lines or filling out numerous forms. Some applications could take as little as 10 minutes, depending on a lender’s requirements and how prepared the borrower is to provide some basic business information. 

What is required for a small business loan? 

How do I get a small business loan? 

The application process depends on the type of financing you’re seeking and the lender’s requirements. If you’re trying to get a small business loan, here are some suggested steps.  

1. Write a business plan 

A business plan can be important for starting a business and making strategic decisions. Lenders may want to see your business plan to better understand what you’re doing and how you plan to use the financing.

2. Choose a type of business loan or financing 

There are many types of business financing, and some options are more aligned with certain circumstances. For example, if you have several progress payments for a marketing plan or construction project, a line of credit could fit your situation. 

3. Compare lenders and determine if your business qualifies 

After identifying a specific type of financing, you can start to compare lenders and their minimum eligibility requirements. You may also want to consider checking your credit scores to see how you might fare with lenders.   

4. Prepare your documents to apply for a loan 

Some of the documents you might need include:  

• Your business plan and financial statements  

• Your business tax returns and employer identification number (EIN)  

• Your business bank statements  

• Business registration, licenses, and permits  

Documentation required by lenders will vary depending on the type of business loan you are applying for and the amount you are approved for.  

5. Assess loan offers and accept the one that's best for your business 

Some lenders may provide you with several offers with varying repayment terms, interest rates, and monthly payments that you can compare before choosing. 

Different financing options will offer different benefits, and factors like repayment terms and loan term lengths will vary across loan types and lenders. Understanding how you might use your funding and preparing for the loan application process ahead of time can be a helpful first step to getting business funding. Each product is different, so make sure you look for the one with the features you care about.  

An American Express® Business Line of Credit¹ could help you have access to the funding you may need after you apply and are approved to address gaps in cash flow or help you grow your small business. Note that the American Express ® Business Line of Credit has different eligibility criteria, terms, and features from the lending products that are discussed above.

Article Footnotes

¹  American Express® Business Line of Credit offers access to a commercial line of credit ranging from $2,000 to $250,000; however, you may be eligible for a larger line of credit based on our evaluation of your business. Each draw on the line of credit will result in either a separate installment loan or a single repayment loan. All loans are subject to credit approval and are secured by business assets. Every loan requires a personal guarantee. For single repayment loans, we charge a total loan fee that ranges from 0.95%-1.80% of the amount you borrow for 1-month loans, 1.90%-3.75% for 2-month loans, and 2.85%-6.05% for 3- month loans.  Single repayment loans incur a loan fee at origination and the principal and total loan fee are due and payable at loan maturity.  There are no required monthly repayments for a single repayment loan.  Repaying a single repayment loan early will not reduce the loan fee we charge you. For installment loans, we charge a total loan fee that ranges from 3-9% of the amount you borrow for 6-month loans, 6-18% for 12-month loans, 9-27% for 18-month loans, and 12-18% for 24-month loans. Installment loans incur a portion of the total loan fee for each month you have an outstanding balance.   If you repay the total of the principal of an installment loan early, you will not be required to pay loan fees that have not posted for subsequent months. For each loan that you take, you will see the applicable loan fee before you take the loan. Once you take the loan, the loan fees that apply to that loan do not change.  We reserve the right to change the loan fees that we offer you for new loans at any time.  American Express reserves the right to offer promotions to reduce or waive loan fees from time to time. Not all customers will be eligible for the lowest loan fee. Not all loan term lengths are available to all customers. Eligibility is based on creditworthiness and other factors. Not all industries are eligible for American Express® Business Line of Credit. Pricing and line of credit decisions are based on the overall financial profile of you and your business, including history with American Express and other financial institutions, credit history, and other factors.  Lines of credit are subject to periodic review and may change or be suspended, accompanied with or without an account closure. Late fees may be assessed. Loans are issued by American Express National Bank.

Single repayment loans may become available to eligible existing and new Business Line of Credit customers at different times. 

The material made available for you on this website is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.