Small business loan terms

Whether you want to grow your business or need to cover cash flow gaps — there’s a small business loan specifically tailored to your needs. Because there are many options, taking the time to understand the differences will help ensure you choose the right loan and repayment terms for your situation.

Here’s an overview of the most popular small business loans to help you decide.

Business loan terms by type of loan

There are several types of business loans and financing you can use to grow your business, access working capital and more. Here’s a breakdown of each type to help you narrow down the right one for your business.

Term business loans

Business term loans come in short-term loan options and long-term loan options. Term loans offer a lump sum amount you repay in fixed, monthly installments plus interest. They’re best for business owners who want to make a longer-term investment in their existing business or fund a one-time expense, like buying a new business.

• Repayment terms: 2 to 10 years
• Loan amounts: $5,000 to $2 million
• Interest rates: Starting at 6% APR
• Time to fund: 1 day to several weeks
• Minimum requirements: Credit score of 680+, 2+ years in business, $50,000+ in annual revenue

Term business loans are available through banks, credit unions and online lenders. Depending on the lender, you may be able to secure your loan with collateral to get a lower rate.

SBA loans

The SBA 7(a), 504, Express and Microloan programs are government-backed loans that you repay in fixed monthly installments. Because collateral and a down payment is typically required, they’re best for established business owners who can get a more competitive rate with an SBA loan than with other options.

• Repayment terms: 10 to 25 years (up to 6 years for SBA Microloans)
• Loan amounts: Up to $5 million
• Interest rates: Based on current market rates
• Time to fund: 30 to 90 days
• Minimum requirements: Must meet both the SBA’s and lender’s eligibility requirements, which may include a credit score of 680+ and 2+ years in business

SBA loan programs are available through banks and online lenders, with some online lenders offering faster turnaround. An SBA guarantee fee and other fees may apply, depending on the lender and loan program.

Traditional bank loans

Traditional bank loans are loans offered by banks and credit unions. They generally offer the most competitive rates to existing bank customers with business accounts and are eligible to receive relationship discounts on their loans — which could be between 0.25% and 0.75%.

• Repayment terms: 18 months to 10 years
• Loan amounts: $5,000 to $2 million
• Interest rates: Starting at 6% APR
• Time to fund: Several days to months
• Minimum requirements: Credit score of 680+, 2+ years in business, $100,000+ in annual revenue

Compared to online lenders, bank loans may require more paperwork and may take longer to fund. But they can be a good option if you can get a competitive rate, especially with relationship discounts added in.

Business lines of credit

A business line of credit (LOC) is a revolving line of credit designed to cover working capital expenses. They’re ideal for newer or bad credit business owners, as well as seasonal business owners who need to purchase inventory or pay for unexpected expenses. But terms typically cap out at one to two years, at which time the LOC must be repaid in full.

• Repayment terms: 1 to 2 years
• Loan amounts: $5,000 to $250,000
• Interest rates: Starting at 8% APR
• Time to fund: A few days or more
• Minimum requirements: Credit score of 560+, 6+ months in business, $50,000+ in annual revenue

With an LOC, you only pay interest on what you borrow, and credit is available to you again as you pay it down. Like a term loan, a business line of credit can be unsecured or secured, which could affect your rate.

Invoice financing

If you’re a B2B business wanting to improve your cash flow, invoice financing can get you a cash advance on your unpaid customer invoices, with an upfront value usually between 80% and 90% of the invoice amount. Once your customers pay the invoice, you receive the rest of the invoice’s value minus the lender’s fees.

• Repayment terms: 30 to 90 days
• Loan amounts: 80% to 90% of the unpaid invoice’s value
• Typical fees: 2% to 5% of invoice value, plus other fees
• Time to fund: As soon as 24 hours
• Minimum requirements: Based on business financials

With invoice financing, you’re still responsible for collecting payments from your customers. The benefit is that you can access most of the value of your unpaid invoices now instead of having to wait.

Invoice factoring

If you’d rather let a third party collect on your invoices, invoice factoring lets you sell your unpaid customer invoices to a factoring company at a discount. The factoring company gives you around 85% to 95% of your invoices’ value up front and takes over the job of collecting payment. You get the rest of the invoices’ value minus fees when they’re paid.

• Repayment terms: 30 to 90 days
• Loan amounts: 80% to 95% up front
• Factor fees: 0.5% to 6% of invoice value, plus other fees
• Time to fund: As soon as 24 hours
• Minimum requirements: Based on business financials like bank statements and outstanding invoices

Because the factoring company takes over the collection process for you, it’s ideal for business owners who don’t want to wait 30, 60 or 90 days for outstanding invoices to be followed up on and paid.

Merchant cash advance

Merchant cash advances are a type of short-term funding that lets you borrow against your future credit card sales. It offers relaxed eligibility requirements compared to other types of loans, making them ideal for new business owners or those with bad credit. Repayments automatically come out of your credit card sales as a fixed percentage plus a fee.

• Repayment terms: Daily or weekly
• Loan amounts: Up to $1 million
• Interest rates: Starting at 18%
• Time to fund: As soon as next day
• Minimum requirements: Based on business financials

If you’re a business owner who can’t qualify for other types of financing, merchant cash advances can provide a quick cash flow solution — but can be more expensive than other types of loans.

Equipment financing

Equipment financing is specifically geared toward buying equipment for your business. It’s historically underused by many businesses, but it can be a smart way to pay for or lease essential equipment — without having to tie up your other sources of credit to pay for equipment that can be financed separately.

• Repayment terms: 1 to 5 years
• Loan amounts: Up to $5 million
• Typical financing cost: Starting at 7.5% APR
• Time to fund: As soon as 24 hours
• Minimum requirements: Credit score of 650+, 1+ year in business, $50,000 in annual revenue

Equipment financing typically offers fixed-rate installment loans that use the equipment as collateral. But depending on your situation, a vehicle or equipment lease may work better for you.

Microloans

Microloans are smaller dollar amount business loans backed by the SBA and offered by SBA-approved lending intermediaries. Amounts range from $1,000 to $50,000 — although the average loan is $13,000 — and may offer lower interest rates and more flexible repayment terms than other types of loans.

• Repayment terms: 6 years for SBA microloans
• Loan amounts: Up to $50,000
• Interest rates: 8% to 13%
• Time to fund: 30 to 90 days
• Qualification requirements: Must meet both the SBA’s and lender’s eligibility requirements

Microloans are geared toward small businesses and not-for-profit childcare centers that may not qualify for a loan elsewhere. To find an intermediary that serves your area, see the SBA’s list of microlenders.

Online loans

Loans available from online lenders tend to have more relaxed eligibility requirements than banks, making them easier to qualify for — even if you have bad credit. Choose from term loans, SBA loans, lines of credit, merchant cash advances, equipment loans, invoice financing and more.

• Repayment terms: Varies by loan type
• Loan amounts: $5,000 to $5 million
• Typical financing cost: 6% to 80%+ APR
• Time to fund: As soon as same day
• Minimum requirements: Varies by loan type

Online lenders typically offer streamlined, low-doc applications and fast funding times — sometimes within 24 hours. But rates can run high with certain types of short-term, quick-turnaround loans.

Can I repay my loan early?

Yes, you can always pay a loan off early, but there may be prepayment penalties depending on the loan.

While most small business loans don’t have prepayment penalties, SBA loans and some commercial real estate loans do. For instance, SBA 7(a) loans with terms over 15 years have a prepayment penalty of 5%, 3% and 1% of the prepayment in the first, second and third years after disbursement, respectively.

The benefit of paying a loan off early is that you can save on interest charges, but it only makes sense to do this if the savings exceeds the cost of the prepayment penalty, if any.