…Unlike an asset-based loan, which is secured against a company's real estate, inventory or other assets, seeking approval for unsecured credit relies on the applicant's credit history and ability to make payments. Credit cards are an example of unsecured credit. With asset-based loans, installment loans and mortgages, there is often a fixed term. Because of this, you may incur an early payment penalty for closing out small business loans before payment is due. Early payment penalties discourage borrowers from paying down principle, thus reducing interest (and the bottom line for the lender). Make sure to ask about early payment penalties when applying for a loan, as you may wish to pay down your loan early if you experience an unexpected influx of capital.

Another term involved with small business loans is "balloon payment". Balloon payment refers to the remaining balance left on the loan that is due after the terms expire. Unlike residential mortgages, commercial mortgages and small business loans often require a large payment at the end of the loan to cover the unpaid principle. If you cannot afford the balloon payment when it becomes due, you may have the option to "reset" the loan with new terms. Capital is the lifeblood of a small business - without liquid assets, operations grind to a halt. Make sure you are fully educated on small business loans before starting a new venture or ramping up your current operation.