Business loans are debt-financing products small and mid-sized companies use to fund working capital, equipment, real estate, or growth. In 2026, SBA 7(a) loans price near prime plus 2.25% to 4.75% under SBA-set caps, conventional term loans from online lenders typically run 8% to 30% APR, and business credit cards land between 18% and 28% APR. Costs, collateral, and approval timelines vary widely by product, lender, and borrower profile.
Key Takeaways
- The main business-financing products are SBA 7(a) and SBA 504 loans, conventional term loans, business lines of credit, equipment financing, invoice factoring, merchant cash advances (MCAs), and business credit cards. MCAs in particular can carry effective APRs well into the triple digits and should be treated with extreme caution.
- Most conventional lenders want at least two years in business, $100,000 or more in annual revenue, a personal credit score around 640+, and a registered business with an EIN before they will even open underwriting.
- A personal guarantee is almost always required for small-business borrowers, meaning your personal assets can be pursued if the business defaults. True non-recourse loans are rare outside of large, established corporations.
- Collateral requirements depend on the product: SBA loans and equipment financing are typically secured, lines of credit may be secured or unsecured, and MCAs and business credit cards are usually unsecured but priced accordingly.
- The cheapest financing tends to be the slowest and most paperwork-heavy. Fast money is almost always expensive money, so match the product to the use case rather than to your patience.
The main business financing products
SBA 7(a) loans are the U.S. Small Business Administration’s flagship general-purpose program. The SBA guarantees a portion of the loan made by an approved lender, which lets banks extend credit to borrowers they might otherwise decline. Maximum loan size is $5 million, terms run up to 10 years for working capital and 25 years for real estate, and rates are capped by SBA rule at prime plus a published spread.
SBA 504 loans are designed for fixed assets such as commercial real estate and heavy equipment. Structured through Certified Development Companies, they combine a bank loan, a CDC-funded debenture, and a borrower down payment. The maximum SBA 504 project size is $5.5 million in most cases, with longer terms and fixed rates on the CDC portion.
Conventional term loans are lump-sum loans repaid over a fixed schedule. Bank term loans tend to offer the lowest rates but the strictest underwriting, while online term lenders fund faster with higher APRs that typically sit between 8% and 30% depending on credit, revenue, and term length.
Business lines of credit work like a revolving credit account: you draw what you need, pay interest only on the outstanding balance, and the line refreshes as you repay. They are well suited to managing cash-flow gaps, payroll timing, or short-term inventory cycles, but watch for draw fees and maintenance fees in the fine print.
Equipment financing uses the equipment itself as collateral, which often allows borrowers with thinner credit profiles to qualify. Loan terms typically match the useful life of the asset, and rates fall between those of SBA loans and unsecured online term loans.
Invoice factoring (and invoice financing) lets a business sell or borrow against outstanding receivables to accelerate cash flow. It is common in industries with long payment cycles, but the effective cost can be high once factoring fees and reserve holdbacks are calculated as an annualized rate.
Merchant cash advances are not loans in the traditional sense. A funder advances a lump sum in exchange for a fixed percentage of future card sales or daily bank deposits, priced as a “factor rate” rather than an APR. Because repayment is compressed into months rather than years, effective APRs on MCAs frequently land between 60% and 200%, and sometimes higher. The Consumer Financial Protection Bureau and multiple state attorneys general have flagged predatory practices in this market. Treat MCAs as a last resort, read every line of the contract, and ideally have a lawyer review confessions-of-judgment and stacking clauses before signing.
Business credit cards provide unsecured revolving credit, often with rewards and short interest-free grace periods on purchases. APRs typically run 18% to 28%, so they are useful for short-term float and expense tracking, but expensive if carried as long-term debt.
SBA loans explained
The Small Business Administration does not directly lend to most borrowers. Instead, it guarantees a portion of loans made by approved banks, credit unions, and non-bank lenders, reducing lender risk and expanding access to credit for qualifying small businesses. That guarantee is why SBA loans can offer longer terms and lower rates than comparable conventional loans for the same borrower profile.
The 7(a) program is the most flexible, funding working capital, debt refinancing, partner buyouts, and acquisitions up to $5 million. The 504 program targets fixed assets like owner-occupied real estate and large equipment, with a project maximum of $5.5 million and a structure that requires a 10% borrower down payment in most cases. The 8(a) Business Development Program supports socially and economically disadvantaged business owners with set-aside contracting and access to mentorship rather than a loan product per se. The SBA microloan program funds loans of up to $50,000 through nonprofit intermediaries and is one of the few practical SBA options for true startups.
Expect SBA approval to take 30 to 90 days from complete application to funding, with documentation including multiple years of business and personal tax returns, financial statements, a business plan, and debt schedules. Rates on SBA 7(a) loans are capped by SBA rule at prime plus a tiered spread that varies by loan size and term — for current 2026 caps, refer to SBA.gov.
How to compare business lenders
Use this checklist before signing any financing agreement:
- APR versus factor rate. APR annualizes the full cost of borrowing. Factor rates (common with MCAs and some short-term loans) are simple multipliers and almost always mask a much higher true cost. If a lender will only quote a factor rate, that is a red flag — calculate the implied APR before proceeding.
- Time to funding. Online term loans can fund in 1 to 7 business days, bank term loans typically take 2 to 4 weeks, and SBA loans run 30 to 90 days. Match the timeline to your actual need, not to the marketing copy.
- Prepayment penalties. Some loans charge a fee if you pay off early, which can erase the savings of refinancing later. SBA loans with terms over 15 years carry a declining prepayment penalty in the first three years.
- Draw fees and maintenance fees on lines of credit. A “low rate” line is not cheap if every draw costs 1.5% and there is a monthly maintenance charge whether you use it or not.
- Collateral requirements. Understand exactly what is being pledged — specific equipment, all business assets via a blanket UCC lien, real estate, or personal property.
- Personal guarantee scope. Confirm whether it is limited, unlimited, joint and several with partners, and what happens in the event of default.
- Documentation burden. Cheaper loans demand more paperwork. Budget time accordingly and use a CPA or bookkeeper if your financials are not lender-ready.
For a side-by-side breakdown of business loan products and lender categories, see our business loans comparison.
What lenders look at
Underwriting for a business loan blends business and personal financial factors. Lenders typically evaluate:
- Time in business. Two or more years is the typical threshold for conventional loans and SBA 7(a). Startups face a much narrower menu.
- Annual revenue. Most online lenders set a floor around $100,000 in annual revenue, with higher thresholds for larger loan amounts.
- Personal credit score. Expect 640+ for most online lenders, 680+ for SBA loans, and 720+ to access the best advertised rates.
- Debt-to-income. Lenders look at both business debt service and the owner’s personal DTI when a personal guarantee is involved.
- Industry risk profile. Restaurants, trucking, cannabis-adjacent businesses, and construction are often priced higher or declined outright by certain lenders.
- Profitability. Recent net income, EBITDA, and trend lines matter — declining revenue is a frequent decline reason.
- Debt service coverage ratio (DSCR). A DSCR of 1.15 or higher is a typical SBA minimum, meaning the business generates 15% more cash flow than required to service the proposed debt.
- Collateral and personal guarantee. Available business assets, owner-occupied real estate, and the strength of the personal guarantor all factor into the credit decision.
Going deeper
Once you have a sense of the product menu, these guides go deeper on the specifics:
Frequently asked questions
What credit score do I need for a business loan?
Most online business lenders set a personal credit floor around 640. SBA loans generally require 680 or higher, and the lowest advertised rates from banks and SBA-preferred lenders typically require 720 or above plus strong business financials. Some equipment financing and invoice factoring products will go lower because they rely on collateral or receivables rather than credit alone.
How long does it take to get a business loan?
Online term loans and lines of credit can fund in 1 to 7 business days for well-qualified borrowers. Conventional bank term loans typically take 2 to 4 weeks. SBA loans usually run 30 to 90 days from complete application to funding, depending on the program, lender, and documentation readiness.
What’s the difference between a term loan and a line of credit?
A term loan is a lump sum disbursed at closing and repaid on a fixed schedule with interest accruing on the full balance. A line of credit is revolving: you draw what you need, pay interest only on the outstanding balance, and the available credit refreshes as you repay. Term loans suit one-time investments like equipment or acquisitions; lines of credit suit ongoing working-capital needs.
What’s an SBA 7(a) versus 504?
SBA 7(a) is the general-purpose program, funding working capital, debt refinancing, partner buyouts, and acquisitions up to $5 million. SBA 504 is designed for fixed assets — primarily owner-occupied commercial real estate and large equipment — with a project maximum of $5.5 million and a structure that combines a bank loan, a CDC debenture, and a borrower down payment.
Are merchant cash advances safe?
Merchant cash advances are legal but often very expensive. They are priced using factor rates rather than APRs, which masks effective annualized costs that frequently land between 60% and 200%. The Consumer Financial Protection Bureau has flagged predatory practices including confessions of judgment, aggressive stacking, and opaque disclosures. Treat MCAs as a last-resort product, calculate the implied APR before signing, and consider any SBA, line-of-credit, or equipment-financing alternative first.
Do I need a personal guarantee?
For small-business borrowers, a personal guarantee is almost always required, meaning your personal assets can be pursued if the business defaults. Exceptions exist for established corporations with strong, audited financials and significant collateral, and for some asset-based or non-recourse facilities at larger scale. Read the guarantee language carefully — including whether it is limited, unlimited, or joint and several with partners.
Can a startup get a business loan?
It is difficult. Most conventional and SBA 7(a) lenders require two or more years in business and demonstrated revenue. Practical alternatives for true startups include SBA microloans (up to $50,000 through nonprofit intermediaries), equipment financing where the asset secures the loan, business credit cards, friends-and-family financing, revenue-based financing for businesses with early sales, and personal loans used for business purposes (with the trade-off that they hit personal credit directly).
What’s the difference between a factor rate and an APR?
A factor rate is a simple multiplier — borrow $50,000 at a 1.35 factor and you repay $67,500 regardless of how quickly. An APR annualizes the true cost of borrowing, accounting for the repayment schedule. Because short-term products like MCAs compress repayment into 6 to 18 months, a seemingly modest factor rate often translates to a triple-digit APR. Always convert factor rates to APRs before comparing offers.
Written and fact-checked by the TopMoneyHub Editorial Team. Rate and lender data verified against SBA.gov and CFPB May 2026.
