Pros and Cons of Small Business Loans

So you are considering small business loans as a way to grow your business or maintaining it, but you don’t really know how they work. This situation is perfectly normal and also very common. In a world full of offerings from different institutions, it’s only natural that you feel a little lost.

If you want to choose the best small business loans for your business, you need to understand how they work and, most importantly, how to increase your chances of getting one.

But beware, you should only apply for one when you really need it. Otherwise, a loan can hurt your business finances instead of favoring them.

What exactly are small business loans?

A small business loan is the lending of money to businesses with more than a year operating and with revenue. Regularly, it is offered by a non-traditional financial institution. Applicants can be small businesses in the brink of growth that need working capital or companies that need capital injection to stay afloat in this economic turmoil.

But please note that these loans are not meant to be taken by startups that don’t have operations, and this is not random. In a year, a business can prove if the product or service it offers has demand, it can make adjustments or pivots to its value proposition and even demonstrate the viability of the business in the long term.

The requirements tend to vary depending on the financial institution, but the most common ones are:

  • Credit score, both company, and owner
  • Revenue
  • Time in business
  • Business plan and use of the money
  • Basic financial records

Pros and Cons of Small Business Loans

There are different types of small business loans that can go from $50,000 up to $5 million. It all depends on your needs and the financial institution. But before you go knocking on doors and visiting lending websites, there are a few considerations you need to take into account. Here are some of the pros and cons of small business loans.


  • You’ll accelerate your growth. The more money you have in your business account, the faster your expansion plans can happen.
  • You won’t need partners. These funds will help you keep all shares of your business without adding associates or giving up equity.
  • Some institutions let you acquire a loan without proving more than five years of operations.


  • You need to be careful not to over-leverage your company. That means borrowing only what you can afford to pay back.
  • Your interests will be subject to your credit score, so if you don’t have a good score, you could drown in interests.
  • Your cash flow will be reduced during the term of the pay off because you’ll have to take into account your monthly payments.


Small business loans are different than a credit card or an average line of banking credit. This option will be tailored specifically for your business and capabilities. Also, remember that they are designed for financing professional and company needs, and not your personal needs.

Before you take a small business loan, evaluate if you really need it, how much financing you can afford, the viability of your business plan, and the amount of interests you are willing/able to pay.

The final advice is to compare and contrast your options. Search for institutions with good reputation, investigate their requirements, and solve all your questions before signing with one. Tip: if your business belongs to a particular niche, such as Latinx, consider approaching a specialized firm, like Camino Financial, to get a better understanding of your needs and success possibilities.