How Do Business Loans Work?

Starting the business you’ve always dreamed of is an exciting time. Maybe you’ve started looking around for the perfect storefront or planning out the perfect website for your online shop. One of the biggest hurdles you’re likely to face is finding the financing to get you to that next stage. That’s where business loans come in.

In 2019, nearly half of all businesses (43%) applied for a loan to help cover operating costs or invest in a new opportunity. On average, business owners receive anywhere from $107,000 to $633,000 when applying for loans, and only about 9% don’t receive any capital after applying, making them an incredible resource for those starting off.

If you’re trying to figure out how business loans work, what options are available for you, and  how to get started, you’re in the right place. We’ll walk you through how they work, and how First Seacoast Bank can be your community partner to help get your business up and running. 

What Is a Business Loan and What Can It Be Used For?

Similar to the ones you may use in your personal life, a business loan is a type of financing designed to help entrepreneurs achieve their goals. These often come from traditional banks, online lenders, or credit unions. Owners are given either a lump sum of money or a credit line that they must repay over time (with interest and fees). Daily, weekly, or monthly payments may be required, depending on the type of loan, and some may require collateral—something of value that the lender can repossess if the borrower doesn't repay it on time.

When applying for your loan, you’ll likely need to specify what it will be used for. Some common uses include:

• Startup costs
• Purchasing or remodeling a commercial property
• Cashflow for everyday expenses
• Equipment and/or inventory purchases
• Business acquisitions
• Business expansion or franchising
• Refinancing
• Marketing and advertising 

Common Types of Business Loans

While this is not a comprehensive list of business loans available from First Seacoast Bank, here are some of the common ones our customers choose: 

Commercial Mortgages 

As the name suggests, commercial mortgages are given to business owners to help them buy commercial property. Typically, these are short-term loans, ranging from three to 10 years, though some can be stretched out for as long as 25 years. They may seem more expensive because they carry a higher risk than other mortgage loans.

SBA Loans

Backed by the U.S. Small Business Administration, these loans are a win-win for both the business owner and the lender. Because the risk is lower for the lender, they may be more willing to increase the loan amount for the business they may not otherwise have access to. Additionally, SBA loans have competitive interest rates, loan amounts can range from $30,000 to $5 million, and can have extended repayment terms (up to 25 years). 

One thing to remember is that the qualification requirements for these types of loans can be more stringent. Our team will work with you to ensure you’re checking all the boxes you need to and advise you on opportunities to improve your chances of success.

Equipment Financing

Equipment financing can help cover most or all of the costs for items you need to help your business, whether that be electronics or large manufacturing machinery. These loans will vary depending on the cost of the needed equipment and may require a down payment of about 15%. The loan terms typically range from three to 10 years.

Loan Consolidation or Refinancing

Maybe you’ve already gone through the application process for a business loan, and either have multiple loans from different sources or one with a higher interest rate from when you first started. By consolidating or refinancing your loans, you can create some added savings for your business. In both cases, this would require applying for a new loan. 

Make First Seacoast Bank Your Preferred Lending Partner

We want your business to succeed as much as you do. That’s why we offer flexible business banking solutions designed to fit your unique needs. When you’re ready to apply, we’ll be here to guide you through every step of the process. 

Interested in learning more? Our business bankers will leverage their expertise to help your business grow and thrive. Contact them today to get started.