That all depends upon the type of loan you’re looking for. To qualify for an SBA loan at the bank for instance, you’ll need a business plan. While other lenders might not require a formal business plan, they will ask questions about loan purpose, how this loan might positively impact profitability, etc. Whether or not a lender requires a business plan, it’s a good idea to go through the exercise so you can articulate why your looking for a loan and the benefit you expect to gain from it.

It’s common practice for lenders to require a personal guarantee from the business owner(s) to protect the lender should the business default on the loan. Lenders do this to mitigate the risk of lending to small businesses, and the guarantee is often a requirement by the lender before offering a loan.

In the event of a default, a personal guarantee gives the lender additional options to collect the debt. This requirement is sometimes waived for businesses that have longer than five years in business and a good business credit rating.

Collateral is any asset or assets, which can be offered by a borrower to secure a loan. Should a borrower default, the lender can take possession of the asset, or assets, to satisfy the loan.

A line of credit is a revolving loan that provides a pre-determined capital limit that can be accesses as needed. Unlike a traditional term loan, all or part of the line can be accesses at any time up to the pre-determined limit. Interest is only paid upon the amount actually used.

The SBA 7(a) loan program is the most common SBA loan program. The maximum loan amount is $5 million. The SBA does not set a minimum loan amount. A 7(a) loan can be used for most typical business purposes, but may not be used for refinancing existing debt, to buy out a partner, to reimburse funds invested by a business owner, to repay delinquent state or federal withholding taxes, or any other purpose not consistent with sound business practices.

The SBA 504 loan program is designed to provide financing for major fixed assets like real estate and equipment. The maximum loan amounts vary depending upon how closely the business purpose supports things like community development initiatives like job creation. A 504 loan cannot be used for working capital or to purchase inventory, consolidating or repaying previous debt, speculation or investment in rental real estate.