A business term loan gives you a lump sum upfront with fixed repayments — making it easier to budget than revolving credit when you’re making a planned investment.
APR is the most accurate way to compare loan costs — some lenders use factor rates instead, which can make true cost harder to spot.
Online lenders can fund in as little as 24 to 72 hours, while bank and SBA loans typically take weeks to months.
This summary was generated by AI and may contain errors or omissions.
Whether you’re buying equipment, expanding a location or simply need working capital with a predictable payment schedule, a business term loan gives you structure to plan around. Rates, amounts and approval requirements vary widely though, and the right lender really depends on your credit profile, how long you’ve been in business and how fast you need the money.
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12+ types of business loans analyzed
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Methodology: How we chose these lenders
We verified every product detail directly against each lender’s own website. Each lender was evaluated across:
Loan amounts and terms — what funding range is available and how long you have to repay
Rate transparency — whether APR, factor rates or interest rate ranges are disclosed on the lender’s own site
Eligibility requirements — minimum credit score, time in business and annual revenue per each lender’s own disclosures
Funding speed — time from approval to money in your account
Lender type — direct lender vs. marketplace and how that affects the borrower experience
Use case fit — whether the product genuinely earns its category on this page
What is a business term loan and how does it work?
A business term loan is a lump sum of money you receive upfront and repay, with interest, over a fixed period through regular installments. The “term” is simply how long you have to pay it back, ranging from a few months to 25 years depending on the lender and what you’re using the money for.
Before you sign, you and the lender agree on the loan amount, interest rate or factor rate and repayment schedule. Once funded, payments begin on a predictable fixed schedule, which is why business owners often prefer term loans over revolving credit when making a specific, planned investment.
The most accurate way to compare loan costs across lenders is APR, which captures both the interest rate and any fees. Two loans with the same interest rate can have very different APRs if one charges an origination fee. Some lenders instead use factor rates, a flat multiplier applied to the total loan amount. If a lender uses factor rates, calculate the total repayment amount to compare fairly against APR-based lenders.
Pros and cons of business term loans
Pros
Predictable fixed payments make budgeting straightforward
Typically lower rates than credit cards or merchant cash advances
Flexible use, from payroll to equipment to real estate
On-time payments can build your business credit profile
Cons
Repayments begin right away, even if your project hasn't yet generated revenue
Less flexible than a line of credit — you can't redraw funds as you repay
Stricter eligibility than some short-term financing options
Collateral or personal guarantees often required on larger amounts
How much do business term loans cost?
The cost of a business term loan depends on three things: the interest rate or factor rate, the fees and the loan term. Here’s how each one works.
Interest rate vs. APR. The interest rate is the base cost of borrowing. APR includes the interest rate plus fees — origination, closing, and any other charges — expressed as a single annual figure. APR is the most accurate way to compare loans. Always use APR, not just the stated interest rate, when shopping.
Factor rates. Some lenders, particularly short-term online lenders, use factor rates instead of APR. A factor rate is a flat multiplier applied to the loan amount. A 1.30 factor rate on a $50,000 loan means you repay $65,000 total, regardless of how fast you pay it off. Factor rates don’t account for time, so they’re harder to compare against APR-based loans. To get a rough APR equivalent, calculate the total repayment cost and annualize it over the loan term.
What you can expect to pay by lender type
Lender type
Typical APR range
Bank term loan
6.8%–11%
SBA 7(a) loan
9.75%–13.25% (maximum variable rates, based on prime of 6.75%)
Online term loan
14%–99%
Short-term / factor rate lenders
Factor rates of 1.10–1.50; equivalent APR often 10%–99%+
Common fees to watch for
Origination fee — typically 1%–5% of the loan amount, deducted upfront or added to the balance
Prepayment penalty — charged by some lenders if you repay early; others offer prepayment discounts
Late payment fee — a fixed amount or percentage charged on missed payments
Closing costs — more common on larger bank or SBA loans
How to compare business term loans
Before applying anywhere, here’s what to evaluate:
APR vs. factor rate. APR is the standardized way to compare loan costs. Some lenders, particularly those offering shorter-term products, use factor rates instead.
Fixed vs. variable rate. Fixed rates stay the same for the life of the loan, predictable and easy to budget for. Variable rates can move with market benchmarks like the prime rate.
Term length. Make sure the repayment window is long enough to keep payments manageable without extending the loan longer than you need.
Fees. Origination fees of 1% to 5% are common. Some lenders charge prepayment penalties, others offer prepayment discounts. Factor fees into total cost comparisons.
Time to funding. Bank and SBA loans take weeks to months. Many online lenders fund in 24 to 72 hours. Match the timeline to your actual need.
Eligibility. Check minimum credit score, time in business and annual revenue before applying to avoid unnecessary hard credit inquiries.
Requirements vary by lender type but most evaluate the same core factors:
Personal credit score. Bank lenders typically want 680 or higher. Many online lenders accept 450 to 640. Higher scores generally mean better rates.
Time in business. Banks usually require two plus years. Online lenders may accept as little as three to six months.
Annual revenue. Ranges from around $180,000 at some online lenders to $250,000+ for bank products.
Business credit history. Separate from your personal score, lenders may review business credit through Dun & Bradstreet or Experian Business.
Collateral. Larger loans often require business assets or real estate as security. Many online lenders offer unsecured options.
Cash flow. Lenders want to see enough revenue to cover existing obligations plus the new loan payment.
How to apply for a business term loan
Check your credit. Pull both personal and business credit reports before applying. Errors can lower your score and cost you a better rate.
Determine how much you need. Be specific — over-borrowing increases cost and under-borrowing may mean a second loan later.
Compare lenders. Use your credit score, time in business and how quickly you need funds to narrow the right lender type.
Gather your documents. Most lenders want three to six months of bank statements, two years of tax returns, a profit and loss statement and legal business documents.
Prequalify where possible. Many online lenders offer a soft credit pull so you can see estimated terms without affecting your score.
Submit your formal application. Response times range from minutes (online lenders) to several weeks (SBA and bank loans).
Review the agreement carefully. Before signing, confirm the full APR or factor rate, total repayment amount, origination fees, prepayment terms and any collateral or personal guarantee requirements.
Compare business term loans
Find the right lender for your credit profile, funding timeline and loan amount.
Business line of credit.Revolving access to funds up to a set limit — you only pay interest on what you use. Better for ongoing or unpredictable cash needs than a one-time investment.
SBA microloan. Up to $50,000 with terms up to seven years, designed for underserved borrowers and smaller funding needs.
Business credit card. Useful for everyday purchases. Introductory 0% APR periods can help short-term, though ongoing rates are typically high.
Invoice factoring. Sell outstanding invoices to a factoring company for immediate cash — no loan required. Works well for B2B businesses with slow-paying clients.
Equipment financing. If you’re specifically buying equipment, the asset serves as collateral — often easier to qualify for and more favorable rates than an unsecured term loan.
Revenue-based financing. Repay a percentage of daily or weekly revenue rather than a fixed payment. Revenue-based financing is useful for businesses with variable cash flow, though total cost can be high.
Frequently asked questions
Short-term loans typically run 24 months or less and work well for immediate cash flow needs. Long-term loans — like SBA 7(a) and bank term loans — stretch from 3 to 25 years and are better for major investments where you want to keep monthly payments manageable over time.
Yes. There are lenders that cater to people with bad credit. Lenders like Advance Funds Network (450 minimum) and Fora Financial (570 minimum) work with lower credit scores. Expect higher rates and shorter terms at the lower end of the credit spectrum. Even a few months of credit improvement before applying can make a meaningful difference in cost.
Same-day funding in an emergency is available from lenders like Pinnacle Funding and OnDeck on approved applications. Most online lenders fund within 24 to 72 hours of approval. Bank loans typically take one to four weeks. SBA loans often take 30 to 90 days.
Megan B. Shepherd is a personal finance expert and editor for loans and insurance at Finder.
Her personal finance expertise has been featured on Forbes, Nasdaq, MediaFeed, Fox News, Time, Reviews.com, and carinsurance.com, adding invaluable information related to personal loans, financial strategies and smart borrowing tactics.
Megan graduated from the University of Texas at Dallas with a BS in Business Administration with an entrepreneurial focus. She's worked as a certified financial adviser and has earned certificates of completion from A.D. Banker & Company.
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