Explaining the Basics of Small Business Loans and SBA Loans

What Are Small Business Loans?

Small business loans are money that is borrowed from banks, credit unions, or alternative sources by the owner of a small business to finance the running of the firm, growth, or comeback. They finance everything from salaries and machinery to buildings and advertising. View them as the capital improvement that sustains your enterprise. 

Typical Uses of Small Business Loans:

• Introducing a new product or service
• Employing employees or freelancers
• Acquiring inventory or raw materials
• Renting or buying office space
• Managing Seasonal Slumps in Revenue
• Recovering from Unforeseen Costs

No loan is one-size-fits-all. There are long, low-interest loans and quick, flexible loans with a higher interest rate. The problem is choosing the one that will serve your business and your finances.

SBA Business Loans: What They Are and Why They Matter

These are government-backed loans with the purpose of supporting small businesses by making available long-term and low-cost funding. Such loans ensure lower interest charges, extended repayment periods, and simplified access to capital.

Why Choose an SBA Loan?

• Lower Interest Rates: Usually more affordable than traditional business loans.
• Longer Repayment Terms: Gives your business more time to repay.
• Smaller Down Payments: Keeps your cash flow more flexible.
• Support for Newer Businesses: You don’t always need years of history.

Types of SBA Business Loans

Understanding the different types of SBA loans is crucial. Each loan type is built for a different business purpose. Let’s break them down.

1. SBA 7(a) Loan – The Most Versatile

This is the SBA’s flagship loan program. It offers up to $5 million and can be used for almost any business need, such as working capital, buying equipment, refinancing debt, or even purchasing real estate.

Who it’s for: Growing businesses that need flexibility.

Highlights:

• Competitive interest rates (usually 6–9%)
• Terms up to 25 years for real estate, 10 years for working capital
• Requires good credit and a solid business plan

2. SBA 504 Loan – Built for Big Moves

Thinking about buying a building? Need new equipment to take your business to the next level? The SBA 504 loan is made for big purchases like these. It’s not your typical loan; it’s a team effort between a regular lender and a Certified Development Company designed to support long-term growth.

Who It’s Great For:

Business owners are ready to invest in major assets like property, facilities, or heavy machinery.

Why People Like It:

• You can get up to $5.5 million in funding
• Fixed interest rates help keep your payments predictable.
• There’s a community angle—your project should help create jobs or support a broader public good.

3. SBA Microloan – Just Enough to Get You Going

Sometimes, you don’t need a big loan, just a little help to get your idea off the ground or take your side hustle to the next level. That’s exactly what the SBA Microloan is for. With loans up to $50,000, it’s perfect for small startups, home-based businesses, or anyone who needs a small lift, not a massive jump.

Who It’s For:

Newer entrepreneurs or small business owners need just a bit of funding to get moving, whether it’s buying supplies, upgrading equipment, or launching a new service.

Why It’s a Great Fit:

• These loans come from nonprofit lenders who understand small business struggles.
• They’re often easier to qualify for than traditional loans.
• You usually get free business advice and support along the way (which can be just as valuable as the money)

If you’re dreaming big but starting small, this loan could be the friendly first step you’ve been looking for.

Cannabis Funding: Why You Can’t Get SBA Loans

Let’s be real: if you’re in the cannabis funding, getting funding can be especially tricky. Even if your business is 100% legal in your state, you still can’t get an SBA loan. Why? Because the SBA is a federal program, and cannabis is still illegal at the federal level. Unfortunately, that’s the wall many cannabis entrepreneurs run into.

Who This Affects:

• Dispensaries
• Growers and cultivation operations
• Processing and manufacturing facilities
• Cannabis delivery services
• Ancillary businesses that handle the plant directly (like packaging or testing labs)

It’s frustrating, especially when you’re doing everything by the book locally. But knowing the limits helps you explore other funding paths that are actually available, and we’ll cover those next.

What Cannabis Businesses Can Do Instead

So, you can’t get an SBA loan, but that doesn’t mean you’re out of options. Many cannabis business owners turn to private lenders who actually understand the industry. These lenders don’t just tolerate cannabis; they specialize in it. They know the challenges you’re facing and offer funding solutions built around your reality.

1. Private Lenders That Focus on Cannabis

These lenders work exclusively with cannabis businesses, so they’re not scared off by legal gray areas or the negative perceptions some traditional banks still carry. Whether you run a dispensary, grow operation, or processing facility, these lenders know how to support your growth with flexible funding that makes sense.

Why It Works:

• Faster Approvals: Skip the endless paperwork and long waits. Cannabis lenders often approve funding in just a few days.
• Built for Your Business: Loan terms are tailored to the ups and downs of cannabis sales, so you get repayment options that actually work for you.
• Less Bureaucracy: You won’t deal with slow, unnecessary steps. These lenders work with businesses at every stage, even early-stage startups.

But There Are Trade-Offs:

• Higher Interest Rates: Rates can run anywhere from 15% to 40%. You’re paying for speed, flexibility, and the fact that the market is still niche and high-risk.
• Shorter Repayment Windows: Most of these loans need to be repaid within 6 to 18 months, which means you need to plan carefully to avoid a cash crunch.

2. Equipment Financing – Get the Gear Without the Financial Strain

Need high-powered grow lights? A new hydroponic system? Or maybe a reliable extraction machine or packaging line? Equipment financing can help you get the tools you need now without draining your cash reserves. With this type of funding, the equipment you’re buying acts as collateral, which makes it easier to qualify, especially if your business is new or your credit isn’t perfect.

Why Business Owners Like It:

• No Giant Upfront Cost: You don’t need to shell out a huge amount of money all at once. You get the equipment right away and pay for it over time so that you can keep more cash on hand for day-to-day expenses.
• Easier to Get Approved: Since the equipment itself backs the loan, lenders are taking less risk, which usually means better chances of approval and more favorable terms.

Keep in Mind:

It’s Only for Equipment: You can’t use this type of financing to cover rent, payroll, inventory, or other operating costs. It’s strictly for gear.

3. Revenue-Based Loans – Funding That Grows with You

Sometimes, you need fast cash, and traditional loans just won’t cut it, especially if credit checks or cannabis regulations keep getting in your way. That’s where revenue-based loans come in. Also called merchant cash advances or sales-based financing, this option lets you borrow money and repay it through a fixed percentage of your sales, usually daily or weekly.

It’s a flexible way to borrow that adjusts with your income, which makes it appealing for cannabis businesses that have steady sales but don’t quite fit into the traditional lending box.

Why It’s a Go-To Option:

• Fast Access to Cash: Need money right away to restock, cover bills, or jump on a time-sensitive opportunity? These loans are built for speed funding and often land in your account within a day or two.
• Low Credit Barriers: Many lenders skip the in-depth credit check and focus on your sales instead. If your business brings in regular revenue, you’ve got a good shot at getting approved, even if your credit history isn’t perfect.

Things to Watch Out For:

• It Can Get Pricey if Sales Slow Down: Since repayments come from a slice of your revenue, slower sales mean it takes longer to pay off, and that can end up costing more over time. If your cash flow dips, you’ll feel it.

4. Venture Capital & Investors – Big Backing for Big Ideas

If your cannabis business is scaling fast and catching attention, venture capital or private investors might be the right move. These are people or firms who invest money in exchange for a piece of your company. They’re not looking for slow and steady; they want big potential, bold ideas, and the chance to be part of something groundbreaking.

Why Entrepreneurs Choose This Route:

• No Loan Repayments: You don’t have to worry about monthly payments or interest stacking up. Since you’re giving up equity, you get capital you can pour straight back into growth.
• More Than Just Money: The right investor brings more than a check. They often come with connections, experience, and advice that can open doors and help you scale smarter and faster.

But There Are Trade-Offs:

• You Give Up Some Control: Bringing on investors means sharing ownership, and with that comes shared decision-making and a slice of your future profits. It’s crucial to partner with people who truly get your mission.
• Not for Everyone: Most investors are looking for businesses that already have momentum, revenue, a growing customer base, and a clear plan to scale. 

Small Business Loan Interest Rates: What They Don’t Tell You Up Front

Let’s be honest—when you’re focused on getting funding, it’s easy to overlook the interest rate. But that small percentage? It can have a huge impact on what you actually end up paying over time. A lot of business owners learn this the hard way, and it can seriously mess with your bottom line. So, how do lenders decide your rate? There’s no one-size-fits-all number. It depends on a few key things:

• Your Credit Score: If your score is solid, you’ll probably land a better rate. If it’s shaky, expect to pay more.
• Loan Term: A longer loan means smaller monthly payments but more interest in the long run.
• Loan Amount: Sometimes, borrowing more can actually get you a lower rate, which is strange but true.
• Collateral: Got assets to back the loan? That usually helps lower the rate.
• Your Business’s Financials: Lenders love steady revenue and healthy cash flow. The stronger your numbers, the better your terms.

How to Prepare for a Business Loan Application (Step-by-Step Guide)

Before You Apply: How to Prep for a Small Business or Cannabis Loan Getting funding isn’t just about filling out forms; it’s about showing lenders that you’re serious, prepared, and ready to put that money to good use. Whether you’re applying for an SBA loan, private cannabis financing, or equipment funding, being organized upfront can be the difference between a “yes” and a frustrating “no.” Here’s your step-by-step checklist to get loan-ready:

1. Organize Your Financial Documents

Think of this as gathering the proof that your business is real and ready. Most lenders will ask for the following:

• Profit and loss statements
• Bank statements
• Business tax returns (usually from the last two years)
• A current balance sheet

If you’re in the cannabis space, be sure to include state licenses and compliance paperwork. Clean, accurate financials tell lenders you run a tight ship.

2. Know Your Credit Scores

Both your personal and business credit scores matter. For traditional loans, lenders usually look for a personal score of 650+. Alternative lenders may work with lower scores (around 600), especially if other parts of your business are strong. If your score’s not where you want it to be, start improving it now:

• Pay off existing debt.
• Fix errors in your report.
• Avoid missed or late payments.

3. Be Clear on Why You’re Borrowing

What’s the loan for?” is one of the first questions you’ll be asked. Have a solid, specific answer. Are you hiring? Expanding your storefront? Restocking inventory? A clear purpose gives lenders confidence you’ll use the money wisely and pay it back on time.

4. Update or Write a Business Plan

Some lenders (especially the SBA) will require a business plan, but honestly, it’s smart to have one, no matter what. It should include:

• Your mission and goals
• A breakdown of your market and competition
• Financial projections
• How the loan will help your business grow

5. Know How Much You Actually Need

Don’t guess or round up. Figure out exactly how much you need and what it’s for. If you ask for too much, lenders may worry you haven’t thought it through. Too little? You might come up short when you actually try to spend it. 

6. Choose the Right Lenders

Not every lender is a fit for every business. Some won’t work with startups. Others won’t touch cannabis businesses. So take time to research:

• Do they lend to businesses in your industry?
• What kind of reviews do they have?
• Do they offer terms that make sense for your needs?

7. Be Honest About Your Challenges

If your business has hit bumps in the road, don’t hide it. Be transparent. Lenders respect honesty, especially when you can explain what you learned and how you’ve bounced back.

8. Be Ready to Answer Tough Questions

Expect lenders to dig in. They may ask:

• What’s your monthly revenue?
• What are your biggest expenses?
• What’s your plan for growth?
• How exactly will this loan help your business make more money?

Conclusion:

SBA loans are one of the best ways to get a business loan as an owner of a small business because of their low-cost relief and flexibility, but they are not recommended for every business. For example, if you own a cannabis business, you will likely not be eligible for traditional SBA loans because of federal law. In this instance, working with lenders in the cannabis space who know and understand your industry and financing needs is the better choice for your business. If you qualify and have access to SBA loans, make sure to access the opportunity for low-cost, long-term stability.

What you can do now is check your credit score and look over your business finances. Determine what you need, how much you need, and why you need the funds in the first place. Next, research your loan options and compare interest rates and lenders who understand your business model.  Most importantly, never hurry a loan – you might be amazed at how many lenders don’t get to the fine print. It doesn’t matter if you’re applying for an SBA loan or looking into cannabis funding; a good loan will help you grow your company with confidence. If you’re really not sure where to begin, speak with a loan advisor or use a lending platform with an industry specialty. You don’t have to figure this out alone, contact us today and finding the right funding partner is often the best way to go.