A small-business owner who needs capital today has more financing options than at any point in modern American history, and many of them are wildly more expensive than they appear. The category that has historically destroyed the most small businesses — merchant cash advances at effective APRs north of 70% — is also the easiest to qualify for and the most aggressively marketed. The category that is usually the right answer for a creditworthy business — the SBA 7(a) loan — takes weeks to close and requires patience that a business in a cash crunch may not have.
This article is a tour of the major small-business financing categories, ordered roughly from cheapest to most expensive, with notes on when each is the right tool.
SBA 7(a) loan
An SBA 7(a) loan is a conventional loan made by a bank, partially guaranteed by the US Small Business Administration. The guarantee is what allows banks to lend to small businesses they would otherwise consider too risky. The loans range from a few thousand dollars to $5 million, terms up to 25 years for real estate and 10 years for working capital, and rates that, in mid-2026, run roughly 9% to 12%.
The catches: the application takes 30 to 90 days, requires extensive documentation (two to three years of tax returns, financial statements, a business plan, personal financial statements from owners), and most lenders require collateral plus a personal guarantee. SBA 7(a) is the right answer for established businesses with good books and the patience to wait for the right loan; it is the wrong answer when payroll is due Friday.
Lenders to consider: Live Oak Bank, Huntington Bank, and a few credit unions are among the most active SBA 7(a) originators by volume. Your local community bank may also be able to help.
Bank term loan
A traditional bank term loan is similar to an SBA loan without the SBA guarantee — a fixed amount, fixed term, fixed schedule. Banks reserve these for their stronger small-business customers: typically two-plus years in business, $250,000+ in annual revenue, owner credit scores above 680. Rates in mid-2026 run roughly 7% to 11%, and the application is a notch faster than SBA but still measured in weeks.
Bank term loans are the right answer when you have an established banking relationship and a clear, long-horizon use of funds — equipment, an acquisition, a build-out — and the time to do it properly.
Business line of credit
A line of credit is a revolving facility — you draw what you need, pay interest only on what you've drawn, and the balance becomes available again when you pay it down. Lines from banks, online lenders like Bluevine and OnDeck, and SBA 7(a) lines all exist, with different rates and qualifying requirements.
Bank-originated lines for established businesses run 8% to 14%. Online lender lines for younger or smaller businesses run 15% to 60%. The line of credit is the right answer for working-capital management — covering payroll between irregular receipts, financing inventory ahead of a busy season — but it is a bad place to park long-term debt.
A common, useful pattern: keep an open line for emergencies, drawn only briefly, and use a term loan or SBA loan for capital needs you know in advance.
Equipment financing
If the use of funds is a specific, identifiable piece of equipment — a truck, a CNC machine, a commercial oven — equipment financing is usually the cheapest option. The lender takes a security interest in the equipment itself, which lowers their risk and lets them offer rates roughly comparable to bank term loans, even to younger businesses. Terms typically match the useful life of the equipment.
Equipment financing is the right answer when the financing exactly matches a specific asset purchase. It is rarely the right answer for working capital.
Invoice factoring
If your business sells to other businesses on net-30 or net-60 terms, factoring sells your unpaid invoices to a factoring company at a discount. You receive most of the invoice value (typically 80% to 95%) immediately, the factor collects from your customer, and you receive the balance minus a fee when the customer pays.
Factoring is expensive — fees of 1% to 5% of the invoice for each thirty-day period the invoice remains outstanding — but it is structurally a sale of a receivable, not a loan, so qualification depends on your customers' creditworthiness rather than yours. This makes it useful for fast-growing businesses with good customers but uneven cash flow, and a poor fit for businesses whose customers are themselves in financial trouble.
Online term loan
Online lenders like Funding Circle, OnDeck, and Lendio originate term loans to small businesses much faster than banks — often within days — but at higher rates. Mid-2026 rates run roughly 12% to 35%, with the lower end available to businesses with stronger credit and longer track records. Origination fees in the 2% to 5% range are common.
Online term loans are the right answer when you need capital faster than a bank can deliver and your credit is good enough to keep the rate under 20%. Above 25% APR, the loan is going to compete with the return on the capital it funds, and you should think hard about whether the use of funds will actually generate enough margin to make the loan worth it.
Merchant cash advance
The merchant cash advance is technically not a loan but the sale of a portion of future receivables for a discount. The MCA company gives you a lump sum and takes a daily or weekly percentage of your credit-card or ACH revenue until they have collected a fixed total — typically 1.2x to 1.5x the advance amount.
The structure obscures the cost. An advance with a "factor rate" of 1.4 paid back over six months works out to an effective APR of around 80%. Paid back over three months, the same advance is closer to 200% APR. Many small businesses do not realize what they have agreed to until the daily debits begin and they cannot keep up.
We recommend MCAs only as a last resort for businesses that have exhausted every other option, that have a known short-term revenue event coming, and that have read the contract carefully. They are easy to qualify for. They are not, except in rare circumstances, a good idea.
What we recommend
Build a banking relationship before you need one. Apply for a small line of credit with the bank that holds your operating account, even if you do not need to draw on it. Pay attention to the SBA 7(a) program — most established businesses should at least know what it would take to qualify. If you need money fast and your credit is decent, look at online term lenders before MCAs. If you need money fast and your credit is not decent, the right answer is almost always to buy yourself time with vendors and customers, not to take an MCA.
If you found a factual error in this article, please write to team@iloans.ai and we will correct it.