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A term loan is the most straightforward type of business financing. You borrow a lump sum, repay it over a fixed schedule with interest, and the loan closes when you’ve paid it off. That’s it. No revolving balance, no variable draws — just predictable monthly payments with a clear end date.
Term loans split into two categories that feel like different products entirely. Short-term loans (3 to 18 months) come from online lenders like OnDeck and Bluevine, fund within days, and charge higher rates — often 15% to 80% APR depending on your creditworthiness. They’re built for urgent needs: covering payroll during a slow month, stocking inventory before a seasonal rush, or bridging a gap between invoices.
Long-term loans (2 to 25 years) come from banks, credit unions, and SBA-backed lenders. Rates are dramatically lower — 7% to 15% for well-qualified borrowers — but the approval process takes weeks, not days. You’ll need strong financials: typically 2+ years in business, $250K+ annual revenue, and a personal credit score above 680. These are for significant investments: expanding to a second location, purchasing major equipment, or refinancing existing high-cost debt.
The trap most business owners fall into: taking a short-term loan because it’s fast when a long-term loan would save them tens of thousands in interest. If your need isn’t genuinely urgent, the extra two weeks to get a bank or SBA loan is almost always worth the wait.
SBA loans aren’t issued by the Small Business Administration directly. The SBA guarantees a portion of the loan — between 50% and 85% depending on the program and amount — which reduces the lender’s risk and lets them offer rates far below what they’d charge otherwise. That guarantee is the reason SBA loans consistently offer the best terms available to small businesses.
There are three main SBA loan programs worth knowing about.
SBA 7(a) loans are the flagship program. Borrow up to $5 million for almost any business purpose — working capital, equipment, real estate, refinancing. Current max rates run from about 11.5% to 16.5% depending on the loan size and term, with repayment up to 10 years for working capital and 25 years for real estate. The catch? Processing takes 30 to 90 days, and lenders want to see at least 2 years of business history, strong cash flow, and a personal credit score north of 680.
SBA 504 loans are specifically for major fixed assets — real estate purchases, heavy equipment, large-scale renovations. They involve two lenders: a Certified Development Company (CDC) covers 40% of the project, a bank covers 50%, and you put up 10%. Rates on the CDC portion are fixed and typically lower than 7(a) rates. Minimum loan amount is usually $125,000, so this isn’t for small needs.
SBA microloans go up to $50,000 (average around $13,000) through nonprofit intermediary lenders. They’re designed for startups and very small businesses that can’t qualify for larger SBA programs. Rates typically range from 8% to 13%, and terms max out at 6 years. If you’ve been in business less than a year and need seed capital, this may be your only SBA option.
A business line of credit works like a credit card for your company — you’re approved for a maximum amount, draw funds as you need them, and only pay interest on what you’ve actually borrowed. Repay it and the funds become available again. No reapplication needed.
This flexibility makes lines of credit ideal for managing cash flow. Seasonal businesses use them to stock up before busy periods. Service companies draw against them while waiting for client invoices to clear. Contractors use them to cover materials costs before the project payment comes through. The pattern is the same: short-term cash needs that resolve themselves within weeks or months.
Rates vary enormously. Bank and credit union lines of credit for established businesses run 7% to 15% APR. Online lenders offer easier qualification but charge 15% to 40% or more. Some online lines of credit charge weekly or daily repayment instead of monthly — read the terms carefully, because a “15% fee” paid back over 6 months of daily draws can translate to an effective APR well above 50%.
Most lenders require at least 6 months to a year in business for a line of credit, with $50K+ in annual revenue. Credit scores above 600 open doors at online lenders; 680+ gets you bank rates.
Equipment loans use the equipment itself as collateral. That’s the key advantage — because the lender can repossess the machinery, vehicle, or technology if you default, they’re willing to approve borrowers who might not qualify for an unsecured loan. Credit requirements are lower, and approval is often faster than a general business loan.
Rates typically range from 4% to 30% depending on your credit, the equipment type, and whether it’s new or used. Loan terms usually match the expected useful life of the equipment — 3 to 7 years is common. Down payments range from 0% to 20%, though putting more down reduces your rate.
Equipment financing covers anything your business needs to operate: commercial vehicles, kitchen equipment, manufacturing machinery, medical devices, construction equipment, salon chairs, point-of-sale systems. If it has a serial number and a resale market, there’s probably a lender who’ll finance it.
If your business invoices other businesses (B2B), your outstanding invoices are an asset — and you can borrow against them. There are two approaches.
Invoice factoring is a sale, not a loan. You sell your unpaid invoices to a factoring company at a discount — typically 1% to 5% of the invoice value per month. They advance you 80% to 90% of the invoice amount immediately and collect payment directly from your customer. When your customer pays, the factor sends you the remaining 10% to 20% minus their fee. Your customers know a third party is involved because the factor handles collection.
Invoice financing (also called accounts receivable financing) is a loan secured by your invoices. You maintain the customer relationship and collect payments yourself. The lender advances you a percentage of your outstanding invoices and charges a weekly or monthly fee until your customer pays and you repay the advance. It’s more expensive than factoring but keeps the factoring company invisible to your clients.
Both options work well for businesses with long payment cycles — construction, manufacturing, staffing, wholesale distribution. If you’re waiting 30 to 90 days for customers to pay but need cash now to cover payroll or materials, invoice-based financing bridges that gap without requiring strong personal credit.
A merchant cash advance (MCA) isn’t technically a loan — it’s a purchase of your future credit card or debit card sales. The MCA company gives you a lump sum and collects repayment by taking a fixed percentage of your daily card transactions until the advance (plus a fee) is repaid.
MCAs are the fastest and easiest business funding to get. Approval can happen in hours, funding in a day. Credit score requirements are minimal because repayment comes directly from your card sales. If you have $10,000+ in monthly card transactions and at least 3 months in business, you can probably get an MCA.
Here’s the problem: they’re extraordinarily expensive. MCAs use a “factor rate” instead of an APR — typically 1.1 to 1.5. A factor rate of 1.3 on a $50,000 advance means you repay $65,000. That $15,000 fee might sound manageable, but if you repay it over 6 months through daily deductions, the effective APR is north of 60%. Some MCAs push past 100% APR when the repayment period is short.
Use an MCA only as a last resort — when you need cash immediately, can’t qualify for anything else, and have a specific plan for how the funds will generate enough revenue to cover the cost. For most businesses, a line of credit or even a high-rate online term loan is cheaper.
Microloans fill a gap that banks won’t touch. Need $5,000 to $50,000 for a business that’s less than a year old? Most banks won’t look at you. SBA microloans, community development financial institutions (CDFIs), and nonprofit lenders will.
The SBA microloan program caps at $50,000 with an average around $13,000. Rates run 8% to 13%, and terms go up to 6 years. These loans come through nonprofit intermediaries — not banks — and many of those intermediaries also provide business mentorship, which can be as valuable as the cash itself for a first-time business owner.
Beyond the SBA program, organizations like Kiva offer 0% interest crowdfunded microloans up to $15,000. Grameen America and Accion serve minority, immigrant, and women-owned businesses with microloans that have relaxed credit requirements. If you’ve been turned down everywhere else, start with your local CDFI — the SBA maintains a directory at sba.gov.
If you’re buying or building the property your business operates from — an office, retail space, warehouse, restaurant, or medical practice — a commercial real estate (CRE) loan is the right tool. These are long-term loans (10 to 25 years) secured by the property itself, with rates that reflect the lower risk that comes with real estate collateral.
Conventional CRE loans from banks typically require 20% to 30% down, a credit score above 680, and proof that the property’s income (or your business income) can cover the debt service at a ratio of at least 1.25:1. Rates range from 5.5% to 10% depending on the loan type, term, and your qualifications.
SBA 504 loans are the most attractive option for owner-occupied commercial real estate. The 10% down payment requirement (vs. 20–30% for conventional) preserves working capital, and the below-market fixed rates on the CDC portion keep long-term costs down. The trade-off is processing time (60–90 days) and the requirement that your business occupy at least 51% of the property.
One category to be careful with: commercial real estate bridge loans. These are short-term (6–18 months) loans used to acquire property quickly while you arrange permanent financing. Rates are high — 8% to 15% — and they assume you’ll refinance into a permanent loan before the term expires. If your refinancing falls through, you’re stuck with an expensive loan that’s about to mature.
Rates and terms are subject to change. This content is for informational and educational purposes only and does not constitute financial advice. Always review the specific terms of any loan offer before accepting.
Merchant cash advances have the lowest barrier — you typically need just 3+ months in business and $10,000+ in monthly card sales. However, they’re also the most expensive option. For a better balance of accessibility and cost, online term loans and business lines of credit from lenders like Bluevine or OnDeck approve borrowers with credit scores as low as 600 and 6+ months in business.
Yes. Unsecured term loans, lines of credit, SBA 7(a) loans under $25,000, and merchant cash advances don’t require specific collateral. However, most lenders still require a personal guarantee, meaning you’re personally responsible if the business can’t repay. Truly “no-collateral, no-guarantee” financing is very rare and comes with the highest rates.
It depends on the loan type. SBA loans typically require 680+. Bank term loans want 680–700+. Online lenders work with scores as low as 500–600, but rates escalate dramatically below 650. Equipment financing is the most forgiving on credit because the equipment itself secures the loan. For the best rates on any loan type, aim for 720 or higher.
Online term loans and lines of credit fund in 1 to 3 business days. Merchant cash advances can fund same-day. SBA 7(a) loans take 30 to 90 days from application to funding. Bank term loans typically take 2 to 4 weeks. Equipment financing averages 3 to 10 business days. If speed is your priority, online lenders and MCAs are fastest — but you pay for that convenience in higher rates.
If you can wait 2 to 4 weeks for funding, an SBA microloan is almost always the better choice. Rates are 8%–13% vs. 15%–80%+ at online lenders, and many microloan programs include free mentorship and business planning resources. Online lenders make sense when you need funds within days and have a clear plan for generating enough revenue to cover the higher cost. Avoid MCAs for startup capital — the cost is rarely justified when you’re still building revenue.
1. U.S. Small Business Administration. “7(a) Loans.” sba.gov
2. U.S. Small Business Administration. “504 Loans.” sba.gov
3. U.S. Small Business Administration. “Microloans.” sba.gov
4. Federal Reserve. “Small Business Credit Survey.” fedsmallbusiness.org
5. IRS. “Section 179 Deduction.” irs.gov
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