Small Business Loan: 5 Decisions Before You Accept an Offer

The lender approved the loan before the business could afford it.

Approval answers whether the lending party will advance funds. Capacity answers whether the enterprise can perform the schedule through a weak season without borrowing again. The sections below test capacity before signature.

1. Fix the Repayment Source Before the Purpose

Every loan is repaid from receipts that do not yet exist. The owner who names those receipts before naming the purchase has performed the central discipline of borrowing.

Before any broker has described the available programs, the forecasting party should identify which customers will pay, which contracts will fund the installments, or whether any season in the forecast can be trusted to arrive on schedule. Ninety days of PayPal history opens one door and nine months in business opens another.

Its Working Capital product terms describe a loan repaid through a share of PayPal sales with a fixed fee and minimum repayment conditions. The product remains a loan in the Working Capital sense. A sales based payment method does not convert the product into a receivables purchase. Counsel should review and analyze the agreement as a loan.

A vehicle, an inventory order, and a seasonal cash gap produce extremely different repayment calendars. The term of the financing should follow the calendar of the thing financed, not the shortest schedule the provider prefers to approve. Where the forecast requires every uncertain assumption to resolve in the same direction, the plan is extremely fragile.

Consider an owner carrying three advances in eleven weeks who seeks a loan to steady the account. The illustration is hypothetical, but the pattern behind it appears in most files of this kind, though no one keeps a proper count of such things. New borrowing whose purpose is feeding existing withdrawals postpones the reckoning and enlarges it.

The approval letter describes what the lender will do. It says nothing about what the business can do.

This is where files go quiet. The owner stops returning the questions that made approval possible, as though silence could preserve the offer. The offer survives. The capacity does not improve for being unexamined.

2. Count the Cash That Reaches the Account

Gross financing includes money the business never touches. Charges retained at funding and balances applied to existing obligations reduce the disbursement before operations see a dollar.

Simply record the net proceeds on the first line of the comparison. That single figure prevents every later calculation from treating retained money as spendable cash. The file should hold the offer, the disclosure pages, and the funding record together.

Request the early payoff figure in writing before signing. Some charges follow a different arithmetic from ordinary interest accruing over time, and the absence of a prepayment penalty does not establish that every unearned charge disappears. An owner expecting a large customer payment needs the written calculation, not the assumption that an early exit costs nothing. Most owners sign the renewal before reading the release. I understand the hurry.

3. Match the Term to the Asset and the Program

The SBA describes 7(a) guarantees as support extended to participating lenders, available for working capital and qualifying refinancing of current business debt. The description sets the boundary. The underwriting decides the application.

Its account of eligible 7(a) purposes helps separate equipment, working capital, and refinancing uses before the owner invests weeks in an application the purpose cannot support. Eligibility describes the program. It does not describe this borrower, this payment, or this season.

For equipment, the repayment period should be read against the period in which the asset will contribute to operations. Installation, maintenance, and idle weeks before first production belong in that reading. An affordable purchase price can conceal a schedule that begins before the machine earns anything, and the concealment is complete before the first installment is due.

Inventory asks a different question. The owner should establish when the stock can be sold and how long customers take to pay. Financing a seasonal purchase through installments that precede the selling season can starve an otherwise profitable transaction of cash.

Often we see forecasts in which every receipt arrives on time and every customer pays in full. Rarely does a lender ask what happens when two of them do not. The owner should ask it first, in writing, with the slow months given their dates.

4. Read the Guarantee and the Security File

The file on the desk contains the loan. The file in the drawer contains the promise behind it.

A personal guarantee deserves a separate reading even when the application travelled under the company name. The signing party should establish who signs, which obligations the instrument covers, and whether later amendments or further advances enlarge the exposure. The caption answers none of these questions.

Security asks for the same patience. The grant should be listed asset by asset and set beside interests already conveyed under earlier agreements. Where the new lending party expects priority, the owner needs to know what must be conceded, or refused, before assuming the transaction can close as proposed. Counsel can ensure the guarantee receives that separate reading and ensure the security description matches the collateral in the yard rather than the collateral in the brochure.

Whether the underwriter noticed the MCA withdrawals and approved the loan regardless is a question the file rarely answers.

5. Test the Loan Against a Weak Quarter

In 2019, before the current wave of disclosure rules, a slow quarter was treated as a surprise. It is now a certainty with an uncertain date, and the forecast should grant it a line of its own.

Run the numbers and test the forecast with receipts arriving late and sales below projection. Identify which expenses remain fixed and how the proposed payment behaves inside that period. The approval was regular. The borrowing can still be a mistake, and the mistake becomes visible only under this pressure.

Where the enterprise already supports advance withdrawals, Delancey Street offers a free confidential initial review of the MCA position, as a debt settlement company rather than a law firm, with legal questions coordinated through independently licensed counsel. The review establishes what the old obligations cost and whether a negotiated arrangement fits available resources. Confirm the accounts covered and the fee before engaging the service, and resist the urge to conceal the advances from the prospective lender in order to smooth the application, even casually.

A useful loan finances work the enterprise can perform, on a schedule the receipts can carry. Consultation is where that assessment begins for owners already under MCA pressure, and the signature that follows should mark the start of a considered investment rather than the purchase of a few more weeks.