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5 Lessons on Small Business Loans from Successful Entrepreneurs

Aja McClanahan

Contributor at Fundera
Aja McClanahan is a financial writer who blogs regularly at and also writes for other online publications covering personal finance, entrepreneurship, travel and general lifestyle topics.
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

Getting a small business loan is a big step. The thought of giving up precious cash flow to service a loan can be pretty intimidating. Every dollar that flows through the business is precious capital that can be used to build the operation or sustain the livelihood of the business owner.

Making the call to grow with borrowed funds or maintain the status quo can be a hard one. But many small business owners eventually make the leap. For some, it fares well and for others, it turns out to be a life lesson. Either way, there’s always something to be learned about money, life, and business in these situations.

What is there to know about small business loans? A lot! Let’s hear about what these small business owners learned about borrowing for business needs.

1. Have a Plan

I’ll start with my very own story. Many moons ago, I started a translation agency from home. After a few months of success, I thought it was a good idea to get office space along with furnishings and computer equipment. Though I could have easily run this business from home, I felt the need to be official with office digs and all the “fixins’.”

I took out a small business loan and used a couple of credit cards to get everything going. In the end, it took too long for my business to become profitable and the debt service made it difficult to grow financially. I became tired and discouraged and eventually shut everything down.

If I could do it all over again, I’d either skip the loan or take out a loan large enough to make an impact in my business growth. A loan that covered scant operating costs and a few months of utilities wasn’t a growth strategy. In hindsight, I should have had a concrete plan for the money I borrowed: a full-time salesperson, Google Ads budget, or some other immediate-impact marketing investment.

Thankfully, I paid the loan off on time and met the agreed-upon terms, but it’s not something I’d do again without a solid plan for a sure ROI.

2. It Takes Money to Make Money

David Rhodes of Rhodes School of Music in Los Angeles had a much better outcome. He took out a loan to expand his business and it worked. He used the loan funds to move to a better location with more space and room for more instruction studios. The funds also covered some renovation to make the space suitable for his business.

Not only did the new location have great foot traffic, it also increased business. Rhodes is adamant about the role his small business loan played in his business’ growth: “[Without the money] we would have been stuck at a small capacity in our old space and unable to grow,” he says. “We would have been at a standstill.”

Rhodes finally understood what it meant to have money for the purpose of making more money. “Once I had the money to spend on my business,” he says, “the gross income grew very quickly after using the funds to relocate and build the space into what it needed to be.”

He factored in the cost of borrowing but didn’t let it hold his business back. “I also learned not to be afraid of paying interest (if reasonable) and a few fees,” Rhodes says. “Having some liquid capital in the bank is very freeing and allows continual investment in marketing and business improvements.”

3. Know Your Business, Know Your Terms

Toni Husbands of Debt Free Divas once owned a laundromat with her husband. To make the business work, they purchased and financed a building to the tune of $200,000. It didn’t take long for Husbands to realized they were in the wrong business. They signed up for the laundromat business but ended up in real estate.

They were constantly dealing with the hassles of the older building they purchased—a leaking roof, bad pipes, and vandalism were just a few of the issues they encountered. Husbands says, “We spent as much time managing an aging building as we did trying to make the laundromat profitable.”

After 10 years, the bank finally called in the loan. These small business owners were shocked. And they walked away with a lesson or two about loan terms. “Banks don’t always foreclose and want the building that stands as collateral,” Husbands says. “In our case, the bank called the loan. That can be a scary experience.”

The good news is that she was able to parlay this experience into her new business, a blog, and podcast all about dealing with debt wisely, Debt Free Divas.

4. Work with a Lender That Understands Your Industry

Lee Huffman, real estate investor of DLH Partners, regularly uses small business loans to acquire and rehab distressed properties. With this business model, he can “create something beautiful for the buyer and improve the values of all homes in the neighborhood.”

Huff learned that when it comes to borrowing for real estate, “Not all banks want to work with businesses in your industry.” So, he advises working with a bank that understands your profit model and vision. He suggests “finding a bank that understands your goals and wants to work with you to achieve them.”

To make the lending process easier, Huff says, you should have all your ducks in a row in terms of paperwork and documentation related to your loan request. Communicate early and often to keep the ball rolling and avoid confusion. “If you don’t understand a question or a document, ask for clarification,” he says. “For example, whenever we’re looking to bid on a property, we let our banker know so that he can start the process on his side, which helps speed up the time to close the loan.”

5. Take Calculated Risks

Lisa Chu of BlackNBianco runs an online fashion boutique for kids and took out a business loan to pay for inventory. She says she was initially turned down by banks many times until she came up with a solid business model and plan.

The clincher was proving that she had some “skin in the game.” She had already put quite a bit of equity into her apparel business thus far. Chu realized she was taking a big risk with the loan even though it worked out in the end. “The one thing I would do differently is not purchase so much inventory on a loan,” she says. “I took a huge risk, and if it failed, it could have ended my business.”

Small Business Loan Lessons

So, as we can see, no matter how the story ends, taking out a small business loan can be scary stuff. If done properly, this injection of capital can change a business for the better. Truth be told, it’s a threshold of risk many entrepreneurs are not ready for—and that’s OK.

If you’re on the fence about growing your business with a loan, calm some of that fear with knowledge and research. Find the right lending partner and loan product that best suits your business needs. We can’t guarantee everything will be perfect, but the more you prepare and learn about what your business needs, the better the outcome will be.

Aja McClanahan

Contributor at Fundera
Aja McClanahan is a financial writer who blogs regularly at and also writes for other online publications covering personal finance, entrepreneurship, travel and general lifestyle topics.

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