What is Lending? What are Lenders?

Business Lending and Lenders Explained
Business Lending and Lenders Explained. SaulHerrera/Getty Images

What Does "Lending" Mean? 

Lending (also known as "financing") in its most general sense is the temporary giving of money or property to another person with the expectation that it will be repaid. In a business and financial context, lending includes many different types of commercial loans. 

What are the Types of Commercial Loans? 

  • Bank financing for small business start-up and working capital
  • Asset financing for equipment and machinery or business vehicles.
  • Mortgages
  • Credit card financing
  • Vendor financing (through trade credit)
  • Personal (unsecured) loans

The type of lender you will need for a business loan depends on several factors: 

  • Amount of loan. The amount of money you want to borrow influences the type of lender. For larger loans, you may need a combination of types of commercial loans. 
  • Assets pledged. If you have business assets you can pledge as collateral for the loan, you can get better terms than if your loan is unsecured.
  • Type of assets. A mortgage is typically for land and building, while an equipment loan is for financing capital expenditures like equipment.
  • Startup or expansion. A startup loan is typically much more difficult to get than a loan for expansion of an existing business. For a startup, you may have to look at some of the more untraditional types of lenders described below. 
  • Term of the loan. How long do you need the money? If you need a short-term loan for business startup, you will be looking for a different lender than for a long-term loan for land and building. 

    What are Lenders? 

    Lenders are people who lend money. The most common lenders are banks, credit unions, and other financial institutions. 

    More recently, the term lenders has been expended to refer to less traditional sources of funds for small business loans, including: 

    Looking for a Lender? 

    As you look for a lender, consider the type of loan you need, whether you have any assets to pledge against the loan, and the other factors that will determine your ability to get a business loan and the terms of that loan. For more information, see my article about the 4 C's of Credit. 

    SBA Loans and Lenders

    You might also consider the Small Business Administration, which works with lenders to provide guarantees for loans to small businesses. Their 7(a) loan program helps small businesses get loans who might not otherwise qualify because of "weaknesses" in their applications. The SBA also has other special loan programs that your business might qualify for.