Term loans
A lump sum repaid over a set term, for expansion or one-time investments.
Financing that fits how your business runs.
Business financing comes in many forms. The right one depends on what the money is for, how long you have operated, and how predictable your revenue is. Here is how the main options compare.
- Match the loan to the need. Short-term needs and long-term assets call for different products.
- Know the true cost. Some products use factor rates instead of APR.
- Mind the guarantee. Many loans make owners personally responsible.
Written by the Lendli Editorial Team under our editorial policy. Last reviewed .
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$5MMaximum SBA 7(a) loan amount
$50KMaximum SBA microloan
1–2 yrsTime in business many lenders want
The true cost: APR vs. factor rate
Some business products, such as merchant cash advances, are priced with a factor rate instead of an APR. A factor of 1.3 means you repay $1.30 for every $1 you receive, no matter how fast you repay.
Two ways to get $20,000
- Term loan: 12% APR over 24 months, $941.47 a month, $2,595 total cost
- Cash advance: factor 1.3 repaid over 6 months, $6,000 total cost, roughly 97% APR if repaid monthly, and higher with daily withdrawals
Always convert offers to an estimated APR and total repayment before you choose speed over cost.
Types of small business financing
Each product is built for a different job.
Lines of credit
Draw and repay as needed; pay interest only on what you use.
SBA 7(a) loans
Partly guaranteed by the SBA, up to $5 million, for working capital, equipment or real estate.
SBA 504 and microloans
504 for major fixed assets; microloans up to $50,000 through nonprofit intermediaries.
Equipment financing
The equipment itself is the collateral.
Invoice financing
An advance against unpaid customer invoices, for B2B businesses waiting to be paid.
Loan payment calculator
Estimated monthly payment
$336.89
Principal $10,000
Total interest $2,128
Total repaid $12,128
Estimates only, for fixed-rate installment loans with payments made on time. Your actual rate, fees and payment depend on the lender's review of your credit and income.
Estimate a business term loan payment
The calculator is set to $50,000 at 12% APR over 60 months. It works for fixed-rate term loans with monthly payments.
It does not fit lines of credit, where payments depend on how much you draw, or merchant cash advances, which are repaid from a share of sales.
Debt service coverage = cash flow ÷ total debt payments
Lenders often look for cash flow comfortably above your total debt payments, so check that the new payment still leaves a cushion in slower months.
Business financing compared
How the main products differ on speed, cost and requirements.
| Type | Typical use | Speed | Cost and caution |
|---|---|---|---|
| Term loan | Growth, one-time investments | Days to weeks | Fixed payments; compare APR |
| Line of credit | Cash-flow gaps, seasonal needs | Days to weeks | Variable rates; draw fees on some |
| SBA 7(a) | Broad business needs, up to $5M | Weeks to months | Competitive rates; more paperwork |
| SBA 504 | Buildings, large equipment | Weeks to months | Long fixed terms; down payment required |
| SBA microloan | Startups, small needs, up to $50K | Varies | Often includes business training |
| Merchant cash advance | Very fast cash | Days | Factor rates can mean very high effective APRs |
What lenders look at
Newer businesses rely more on the owner's personal credit; established ones on revenue and financials.
Time in business
Many lenders want at least one to two years of operation.
Revenue and cash flow
Bank statements, tax returns and financial statements.
Credit, personal and business
Owners' personal credit often matters, especially early on.
Collateral and guarantees
Many loans need collateral, a personal guarantee, or both.
About SBA loans
The SBA usually does not lend directly. It guarantees part of loans made by approved lenders, which reduces lender risk and can mean longer terms and competitive rates. The SBA's Lender Match tool at sba.gov can connect you with participating lenders.
Pros and cons of business borrowing
Debt can fund growth without giving up ownership, but it adds fixed obligations.
Pros
- Keep full ownershipNo equity given to investors.
- Build business creditMakes future borrowing easier.
- Predictable costsTerm loans have fixed payments.
- Possible tax treatmentBusiness interest may be deductible; ask a tax professional.
Cons
- Personal guaranteesPersonal assets can be at risk.
- Fixed obligationsPayments are due in slow months too.
- High-cost productsFast financing can carry very high effective costs.
- Frequent withdrawalsDaily or weekly debits can strain cash flow.
How to prepare your application
Organized paperwork speeds decisions and can improve your terms.
Gather financials
Two to three years of tax returns, bank statements and financial statements.
Check credit
Review personal and business credit reports.
Write a short plan
How much, what for, and how it will be repaid.
Compare 3 offers
Convert each to APR and total repayment.
Read the contract
Check payment frequency, fees and guarantees.
Warning signs in business financing
Small businesses have fewer consumer protections than individuals, so read carefully.
No APR disclosed
If an offer only shows a factor rate or daily payment, calculate the APR yourself before signing.
Stacking
Taking several cash advances at once can quickly overwhelm cash flow.
Confession of judgment
Some contracts include clauses that waive your right to defend yourself in court. Have a lawyer review unusual terms.
Small business loan questions, answered
What business owners ask most before they borrow.
Can I get a business loan for a new business?
Options are more limited. SBA microloans, equipment financing and loans based on the owner's personal credit are common routes for startups.
Do I need collateral for a business loan?
Not always, but many lenders require collateral, a personal guarantee, or both.
What is the easiest business loan to get?
Products with fast approval, like merchant cash advances, are often the most expensive. Compare total cost before choosing speed.
How long does an SBA loan take?
It varies by lender and loan type; SBA loans generally take longer than online business loans because of the extra documentation.
What is a factor rate?
A multiplier applied to the amount advanced. A 1.3 factor on $20,000 means repaying $26,000, regardless of how quickly you repay.
Explore your financing options
Check what lenders may offer, then compare cost and terms before you commit.