Business Loan Definition

Learn more about what a business loan is.

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business loan definition

Starting a business can be expensive, and aspiring business owners don’t always have all the cash they need to get their ventures rolling. That means they must seek ways to finance their enterprise. One popular way that many entrepreneurs finance a company is through business loans. In fact, the U.S. Small Business Administration reports that banks recently loaned more than $644 billion to small businesses. A business loan can be crucial to your success, so let’s talk about what it is and how it can help. 

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What is a business loan? 

A business loan, by definition, is money or a line of credit a business or individual gives to another business for its startup or operations. A business needs to pay back the loan, usually in installments. 

Business Loan Examples

The business loan definition includes commercial real estate loans, as well as commercial and industrial loans.

Commercial Real Estate Loans

A commercial real estate loan is a line of credit you can use to buy, develop, or build real estate for your business. In many cases, this is a mortgage that uses your business property as collateral. 

Commercial and Industrial Loans

A commercial and industrial loan is a loan that can fund a number of business activities and needs, including:

You might need to secure this type of loan with collateral as well, but that collateral can’t be real estate. 

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Business Loan Advantages

When it comes to a business loan, the benefits are the opportunities it can create. Business loans make it possible for anyone to start a business. You don’t have to be rich or well-connected to start a business if you have a good idea and a willing lender. 

A business loan can also make it easier to start or build upon your business quickly. With a loan, you don’t have to wait to raise funds on your own before putting a new idea in motion. 

Business Loan Disadvantages

If you have a business loan, that usually means you’ll be paying back the loan amount with interest. Interest rates can be expensive, and your payments are due regardless of whether you have a good or bad quarter. Also, businesses that put real estate or other property up as collateral to secure their loans could risk losing that business property if they run into tight times and default on the loan. And if your business’s structure doesn’t limit personal liability, you could also lose important personal assets in a business loan default. 

Summary

A business loan can help you fund a new business or improve an existing business. While these loans provide opportunities for many, paying back the loan money can be a large financial burden. Also, if you run into trouble paying back the loan, you could lose personal or business property if you default on the loan. It’s important to read the fine print of any loan agreement and review its terms with legal and financial professionals before you sign. 

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We can help

When you’re ready to start your own business, you need the funds and often need to file and track a lot of paperwork. We can help with that! 

Our Business Formation Service can help you quickly start your business. And our Worry-Free Compliance Service can help you keep your business legally compliant. Also, with ZenBusiness Money, we can help you keep track of your business finances. We can lighten your load to help you move higher in the business world. 

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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