Small business loans work by providing a lump sum of money or a flexible line of credit that businesses can use for various purposes such as starting, operating, or expanding their operations. The business borrows this money from a lender—such as a bank, credit union, or online lender—and agrees to repay the borrowed amount with interest over a specified period. Approval typically requires a good credit score, business revenue, and sometimes collateral or a personal guarantee. The loan can be used for buying inventory, equipment, hiring employees, managing cash flow, marketing, or purchasing real estate. Terms, interest rates, and repayment schedules vary depending on the lender and loan type, and loans can either be secured (backed by collateral) or unsecured.