Quick Answer
Quick Answer: The six main types of business loans are SBA loans (government-backed, lowest rates at 5-13%), term loans (lump sum with fixed payments), business lines of credit (flexible revolving access), equipment financing (asset-backed), invoice factoring (sell receivables for cash), and merchant cash advances (revenue-based repayment -- last resort due to extremely high costs).
Quick decision guide: Need lowest rates and can wait? SBA loan. Need a lump sum with predictable payments? Term loan. Need flexible, ongoing capital? Line of credit. Buying equipment? Equipment financing.
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Key Takeaways
- SBA loans offer the lowest rates (5-13%) and longest terms (up to 25 years) but require strong credit, extensive documentation, and 30-90 days to fund
- Term loans are the most straightforward option: borrow a lump sum, make fixed monthly payments. Rates range from 6-30% depending on creditworthiness and lender type
- Business lines of credit provide flexible revolving access -- you only pay interest on what you draw, making them ideal for managing cash flow gaps and seasonal inventory
- Equipment financing and invoice factoring are asset-based alternatives that may be accessible to businesses with weaker credit, since the asset or receivable serves as collateral
- Avoid merchant cash advances unless absolutely necessary -- effective APRs of 20-80%+ make them the most expensive option by far
Business Loan Types at a Glance
The following table summarizes the six main types of business financing available to small business owners. Rates and terms shown are representative ranges as of 2026 and vary based on creditworthiness, business history, lender, and market conditions.
| Loan Type | Typical Rate | Loan Amount | Term | Time to Fund | Best For |
|---|---|---|---|---|---|
| SBA 7(a) | 6-10% | Up to $5M | 7-25 years | 30-90 days | Large purchases, expansion, real estate |
| SBA 504 | 5-7% | $125K-$5M | 10-25 years | 60-90 days | Commercial real estate, heavy equipment |
| SBA Microloan | 8-13% | Up to $50K | Up to 6 years | 30-60 days | Startups, small working capital needs |
| Term Loan (bank) | 6-13% | $25K-$500K+ | 1-10 years | 7-30 days | Established businesses, specific projects |
| Term Loan (online) | 8-30% | $5K-$500K | 3 months-5 years | 1-7 days | Fast funding, less-than-perfect credit |
| Business Line of Credit | 7-25% | $10K-$250K | Revolving | 7-21 days | Cash flow management, seasonal needs |
| Equipment Financing | 4-20% | Cost of equipment | 2-7 years | 3-14 days | Machinery, vehicles, technology |
| Invoice Factoring | 1-5% per invoice | Based on receivables | Per invoice | 1-3 days | B2B with outstanding invoices |
| Merchant Cash Advance | 20-80%+ (effective APR) | $5K-$500K | 3-18 months | 1-3 days | Last resort only |
Rates shown are representative ranges as of February 2026 and vary based on creditworthiness, business history, lender, and market conditions. Rates are not guaranteed.
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SBA Loans: Government-Backed, Lowest Rates
How SBA Loans Work
The Small Business Administration (SBA) does not lend money directly. Instead, it guarantees a portion (up to 85%) of loans made by approved SBA lenders -- banks, credit unions, and some online lenders. This guarantee reduces risk for the lender, which translates to lower interest rates and longer repayment terms for borrowers.
Three main SBA programs serve different needs: 7(a) for general purposes, 504 for real estate and heavy equipment, and Microloans for small amounts targeting startups.
SBA 7(a) Loan (Most Common)
The 7(a) program is the SBA's primary and most flexible loan program.
- Maximum loan amount: $5 million
- Interest rates: Prime + 2.25-4.75% (approximately 6-10% in the 2026 rate environment)
- Terms: Up to 10 years for working capital, up to 25 years for real estate
- Down payment: Typically 10-20%
- Guarantee fee: 2-3.75% of the guaranteed portion
- Requirements: Credit score 680+, 2+ years in business (preferred), strong business plan, no recent bankruptcies
SBA 504 Loan (Real Estate and Equipment)
The 504 program is designed for major fixed asset purchases such as commercial real estate and heavy equipment.
- Structure: 50% from a bank, 40% from a Certified Development Company (CDC), 10% borrower down payment
- Rates on the CDC portion: Below-market fixed rates (approximately 5-7%)
- Terms: 10, 20, or 25 years
- Job creation requirement: Generally must create or retain 1 job per $75,000 borrowed
If you are comparing the 504 program's real estate financing to a traditional commercial mortgage, our Mortgage Calculator can help you model different payment scenarios.
SBA Microloan
- Maximum: $50,000 (average loan is approximately $13,000)
- For: Startups and very small businesses
- Administered through: Nonprofit intermediary lenders
- Terms: Up to 6 years
- Rates: 8-13%
- Advantage: Easier qualification than 7(a) but smaller amounts
SBA Loan Tip: You apply for SBA loans through an SBA-approved lender, not the SBA itself. Start by searching the SBA Lender Match tool at SBA.gov to find approved lenders in your area.
Term Loans: Simple and Predictable
A term loan is the most straightforward type of business financing: you borrow a lump sum and repay it in fixed monthly installments over a set period. The predictable payment structure makes budgeting easier for business owners.
Bank Term Loans
- Rates: 6-13%
- Requirements: Credit score 680+, 2+ years in business, strong financial statements
- Funding time: 7-30 days
- Best for: Established businesses with specific, one-time funding needs
Online Lender Term Loans
- Rates: 8-30%
- Requirements: Credit score 600+, 6+ months in business
- Funding time: 1-7 days
- Best for: Businesses that need fast funding or have less-than-perfect credit
Key trade-off: You pay interest on the full loan amount from day one, even if you do not use all the funds immediately. If you need flexible access rather than a fixed lump sum, a line of credit may be a better fit.
To understand how your term loan payments break down between principal and interest over time, see our Loan Amortization Schedule Explained guide. To understand the difference between the stated interest rate and the true cost of borrowing, review our APR vs Interest Rate guide.
Business Lines of Credit: Flexible Revolving Access
A business line of credit works like a credit card for your business. You are approved for a maximum amount, draw what you need, and pay interest only on the outstanding balance. When you repay, the credit becomes available again (revolving).
- Rates: 7-25% (draw rate), sometimes with an annual fee or maintenance fee
- Amounts: Typically $10,000-$250,000
- Best for: Managing cash flow gaps, covering payroll during slow periods, seasonal inventory, unexpected expenses
Secured vs. unsecured: Secured lines (backed by business assets) typically carry lower rates. Unsecured lines are easier to obtain but come with higher rates and lower limits.
Line of Credit vs. Term Loan: Choose a term loan for one-time expenses with a known amount (renovation, marketing campaign, expansion). Choose a line of credit for ongoing, variable needs (payroll coverage, seasonal inventory, emergency cushion). Many businesses carry both.
If you are managing existing business debt alongside a new line of credit, our Debt Consolidation Guide covers strategies for simplifying multiple obligations. Understanding your credit utilization ratio is also important -- high utilization on revolving credit can affect your ability to qualify for additional financing.
Equipment Financing: Asset-Backed Lending
Equipment financing uses the equipment itself as collateral, making it accessible to businesses with limited credit history. Since the lender can repossess the equipment if you default, these loans typically carry lower rates than unsecured options.
- Rates: 4-20% depending on credit, equipment type, and condition (new vs. used)
- Terms: Typically match the expected useful life of the equipment (2-7 years)
- Down payment: 0-20% depending on lender and equipment
- Loan-to-value: Up to 100% of equipment cost (some lenders finance soft costs like delivery and installation)
Common uses: Construction equipment, restaurant kitchen equipment, medical and dental equipment, commercial vehicles, manufacturing machinery, technology hardware.
Equipment Financing Example
- Equipment cost: $75,000 (commercial kitchen oven)
- Down payment: $7,500 (10%)
- Financed amount: $67,500
- Rate: 8% over 5 years
- Estimated monthly payment: approximately $1,369
- Total interest: approximately $14,640
Advantage: Preserves your working capital and other credit lines for operational needs. Disadvantage: Only usable for equipment -- cannot fund general business expenses.
If you are financing a commercial vehicle, comparing business equipment loan rates to auto loan rates by credit score can help you understand whether dealer financing or a business equipment loan offers a better deal.
Invoice Factoring and Alternative Financing
Invoice Factoring
Invoice factoring is not technically a loan. Instead, you sell your outstanding invoices to a factoring company at a discount (typically 1-5% per invoice). You receive 80-90% of the invoice value upfront, and the remainder (minus fees) when the customer pays.
- Best for: B2B businesses with reliable corporate customers and slow-paying invoices (30-90 day terms)
- Advantage: Qualification is based on your customers' creditworthiness, not yours
- Disadvantage: Customers may learn you are factoring (some view this negatively); fees add up with recurring factoring
- Funding speed: 1-3 days
Merchant Cash Advance (MCA)
A merchant cash advance provides a lump sum repaid through a percentage of your daily credit and debit card sales. It is technically a purchase of future receivables, not a loan.
- Factor rates: 1.2-1.5x (meaning you repay $12,000-$15,000 for every $10,000 received)
- Effective APR: 20-80%+ depending on repayment speed
- Fastest funding: 1-3 days with the lowest qualification requirements
Warning: Merchant Cash Advances Are Extremely Expensive
MCAs carry effective APRs of 20-80% or higher, making them the most expensive form of business financing by far. They should be used only as a last resort when no other options are available. Some states have begun regulating MCAs due to predatory lending concerns. Always exhaust other financing options first.
How to Choose the Right Business Loan
Your decision should be driven by four factors: what you need the money for, how much you need, how quickly you need it, and your credit and business qualifications.
Decision Framework
- Purpose: What will you use the funds for? Equipment purchases point to equipment financing. Cash flow gaps point to a line of credit. Expansion or real estate points to a term loan or SBA loan.
- Amount needed: Small amounts (under $50K) suit SBA Microloans or lines of credit. Medium amounts ($50K-$500K) fit term loans or SBA 7(a). Large amounts ($500K+) call for SBA 7(a) or 504.
- How quickly you need funds: Urgent (1-7 days) suggests online term loans, lines of credit, or factoring. Standard (2-4 weeks) fits bank term loans. Patient (1-3 months) qualifies you for SBA loans.
- Your qualifications: Strong credit (680+) and 2+ years in business opens bank and SBA options. Moderate credit (600-679) points to online lenders. Weaker credit (under 600) limits you to asset-backed options like equipment financing or factoring.
| Your Situation | Best Option | Why |
|---|---|---|
| Strong credit, can wait, need lowest rate | SBA 7(a) | Government guarantee = lowest rates |
| Need funds in 1-7 days | Online term loan or line of credit | Fast underwriting and funding |
| Seasonal or unpredictable cash flow | Business line of credit | Pay interest only on what you use |
| Buying specific equipment | Equipment financing | Equipment = collateral, preserves other credit |
| B2B with slow-paying customers | Invoice factoring | Based on customer credit, not yours |
| Buying commercial property | SBA 504 | Lowest rates for real estate |
What You Need to Apply for a Business Loan
Qualification requirements vary significantly by loan type and lender. The following table summarizes typical requirements. Individual lenders may have different thresholds.
| Requirement | SBA Loan | Bank Term | Online Lender | Equipment |
|---|---|---|---|---|
| Personal credit score | 680+ | 680+ | 600+ | 600+ |
| Time in business | 2+ years | 2+ years | 6+ months | 1+ year |
| Annual revenue | $100K+ | $100K+ | $50K+ | Varies |
| Business plan | Required | Often required | Rarely required | Not required |
| Collateral | Often required | Often required | Rarely required | Equipment is collateral |
| Financial statements | 2-3 years | 2-3 years | 3-6 months bank statements | 1-2 years |
| Processing time | 30-90 days | 7-30 days | 1-7 days | 3-14 days |
Important: Personal Guarantees
Most small business loans require a personal guarantee from owners with 20%+ ownership. Signing a personal guarantee means your personal assets are at risk if the business cannot repay the loan. Understand this commitment before signing.
Industry restrictions: Some industries face lending restrictions, including cannabis, firearms, gambling, and adult entertainment. Check with lenders about industry-specific policies before applying.
Understanding how your personal credit affects business loan eligibility is critical. For context on how credit scores influence lending rates across different products, see our Personal Loan Rates by Credit Score guide.
Frequently Asked Questions
There is no single "best" type. SBA loans offer the lowest rates (6-10%) but take longest to fund. Term loans are straightforward for specific projects. Lines of credit provide the most flexibility for cash flow management. The best choice depends on your purpose, timeline, and qualifications.
SBA and bank loans typically require 680+. Online lenders may approve scores as low as 600. Equipment financing may accept 600+ because the equipment serves as collateral. Invoice factoring depends on your customers' credit, not yours.
The SBA does not lend directly. It guarantees up to 85% of loans made by approved lenders (banks, credit unions). This guarantee reduces lender risk, enabling lower rates and longer terms. You apply through an SBA-approved lender, not the SBA itself.
Get a term loan if you need a specific lump sum for a defined purpose (expansion, renovation, equipment). Get a line of credit if you need ongoing, flexible access to funds for cash flow management, seasonal needs, or unexpected expenses. Many businesses carry both.
SBA loans: 30-90 days. Bank term loans: 7-30 days. Online lenders: 1-7 days. Equipment financing: 3-14 days. Invoice factoring: 1-3 days. Preparation (gathering documents, completing applications) can add 1-2 weeks to any timeline.
Yes, but options are limited and more expensive. Online lenders (600+ credit), equipment financing (equipment as collateral), and invoice factoring (based on customer credit) are the most accessible options. Merchant cash advances accept almost anyone but are extremely expensive and should be a last resort.
Business loans are underwritten based on business financials, credit, and revenue. Personal loans are based on personal income and credit. Using personal loans for business carries risks: mixing personal and business finances, lower limits, and no business credit building. Business loans typically offer higher amounts and business-specific terms.
Interest payments on business loans are generally tax deductible as a business expense. The principal repayment portion is NOT deductible. Consult a tax professional for your specific situation. For broader tax strategy context, see our Capital Gains Tax Strategies guide.
Key Takeaways and Next Steps
- Match the loan to your need: SBA loans for lowest cost, term loans for predictable payments, lines of credit for flexibility, equipment financing for asset purchases, invoice factoring for receivables-based cash flow.
- Consider your timeline: SBA loans take 30-90 days. If you need funds in 1-7 days, look at online lenders, lines of credit, or factoring. Factor your urgency into the decision.
- Know your qualifications: Strong credit (680+) and 2+ years in business opens the most doors. If your credit or business history is limited, focus on asset-backed options or online lenders.
- Avoid MCAs unless absolutely necessary: Effective APRs of 20-80%+ make merchant cash advances the most expensive option. Exhaust every other avenue first.
- Model your payments before applying: Use our Business Loan Calculator to compare monthly payments and total interest across different loan amounts, rates, and terms.
The right business loan depends on your specific situation -- your industry, your growth stage, your cash flow patterns, and your credit profile all matter. Start by defining your purpose and timeline, then match those needs to the loan type that best fits. If you are unsure, consult with a qualified financial advisor or an SBA-approved lender who can evaluate your full financial picture.
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For more financial planning resources, explore our Loan Calculator for general loan modeling, our Compound Interest Guide to understand how interest compounds over time, review the 2026 Tax Brackets for business owner tax planning, or use our Net Worth Calculator to track your overall financial health. If you are considering government-backed financing for a home purchase alongside your business, our FHA Loan Requirements 2026 guide explains that process.
Sources
- U.S. Small Business Administration -- Loan Programs (opens in new tab)
- SBA -- 7(a) Loan Program (opens in new tab)
- SBA -- 504 Loan Program (opens in new tab)
- SBA -- Microloan Program (opens in new tab)
- Federal Reserve -- Small Business Credit Survey (opens in new tab)
- Consumer Financial Protection Bureau -- Small Business Lending Resources (opens in new tab)
Important Disclaimer
Disclaimer: This guide provides general information about business loan types for educational purposes. Loan terms, rates, qualification requirements, and availability vary by lender, market conditions, and individual business circumstances. This is not financial or legal advice. Consult a qualified financial advisor, accountant, or SBA-approved lender for guidance specific to your business. Personal guarantees carry significant personal financial risk -- signing a personal guarantee means personal assets are at risk if the business cannot repay. Data current as of February 2026.
Content reviewed by the Digital Calculator Team. Learn more about our accuracy standards.