Small-business borrowing is not a single product. It is a collection of financial tools that share a name and almost nothing else. A working-capital line of credit and an SBA real-estate loan have less in common than a personal loan and a mortgage. Treating them as interchangeable — or trusting a generalist banker who treats them as interchangeable — is how small-business owners end up paying for the wrong thing.
This guide covers the five categories that account for the bulk of small-business borrowing in the United States, the situations each is suited to, and the trade-offs that matter when comparing them.
Term loans
The classic structure: a fixed amount borrowed at origination, repaid in regular installments over a set period. Best for one-time investments where you know exactly how much you need — equipment purchases, business expansion, build-outs, real-estate improvements. Rates from 7.99 percent APR for strong borrowers; terms typically two to seven years for unsecured term loans, longer for secured.
The strength of a term loan is predictability: a known payment, a known payoff date. The weakness is rigidity: you cannot easily borrow more later without applying again, and most term loans are not structured to flex with cash-flow seasonality.
SBA loans
Loans backed by the U.S. Small Business Administration, originated by approved lenders. The government guarantee allows lenders to offer terms that would otherwise be uneconomic — longer durations, lower rates, smaller down payments. The trade-off is paperwork and time: SBA loans typically take thirty to ninety days to fund, sometimes longer, and the documentation requirements are substantially heavier than conventional loans.
The two most common SBA programs are the 7(a) loan (up to $5 million for general business purposes) and the 504 loan (commercial real estate and major equipment, often up to $5.5 million). Both currently price in the eight-to-eleven-percent APR range.
Working-capital loans & lines of credit
Short-term financing (3–18 months) for managing cash-flow gaps, seasonal inventory builds, or bridge financing between accounts receivable. Higher rates than term loans (typically 12–35 percent APR), with much faster funding and lighter documentation requirements. Some lenders fund within 24 hours.
Lines of credit are revolving — you borrow as needed up to a limit, repay, and borrow again. Best for businesses with intermittent or unpredictable working-capital needs. Term-loan working capital is a fixed disbursement, repaid over a fixed schedule, and is more appropriate for a known one-time gap.
Equipment financing
Loans secured by the equipment being purchased. Because the equipment serves as collateral, rates are lower (6–12 percent APR), approval is faster, and the loan does not consume the same general credit capacity as an unsecured term loan. Terms typically match the useful life of the equipment.
The structural advantage of equipment financing is that the asset and the liability are matched: when the equipment is fully depreciated, the loan is paid off. The structural disadvantage is that the lender has a security interest in the equipment, which can complicate later sales or upgrades.
Revenue-based financing
The newest of the five categories, revenue-based financing (sometimes called RBF or merchant cash advance) provides an advance that is repaid as a percentage of the borrower's revenue until a fixed total is repaid. There is no fixed monthly payment — payments scale with revenue.
RBF is best for businesses with strong, predictable revenue but limited credit history or assets. Effective APRs vary widely (15–60 percent in many cases), and the structure can be quite expensive on an APR basis even when it looks cheap on a "factor rate" basis. Read the math carefully before signing.
The right financing is not the one with the lowest rate. It is the one that matches the cash-flow profile of what you are financing.
What lenders look at
Business-loan underwriting evaluates more dimensions than consumer lending. Beyond the owner's personal credit, lenders look at:
Time in business. Most banks require at least two years; SBA lenders prefer three or more. Some revenue-based lenders work with businesses as young as six months.
Annual revenue. Most lenders want to see at least $100,000 in annual revenue; SBA prefers $250,000 or more. Revenue-based lenders typically have a $250,000 minimum.
Cash flow. Lenders examine bank statements (typically three to twelve months) to verify operational cash flow can support repayment.
Personal guarantee. Most small-business loans require a personal guarantee from owners with twenty-percent-or-greater stakes — meaning your personal credit and assets are on the line if the business defaults.
Industry. Some lenders specialize in or avoid certain industries. Restaurants, construction, trucking, and cannabis businesses face industry-specific lender pools.
Ready to shop?
Below: our top picks for business loans, drawn from publicly available lender materials.
Top picks: business loans
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Frequently asked questions
What is the minimum credit score for a business loan?
It varies by product. Working capital loans are available with personal scores as low as 600. SBA loans typically require 680+. Equipment financing can work with scores in the 580–620 range due to the collateral. Revenue-based financing sometimes ignores credit score entirely and underwrites only on revenue.
Do I need to provide a personal guarantee?
Most small-business loans require a personal guarantee from owners holding 20% or more equity, especially for businesses under 10 years old. This means you are personally liable if the business defaults. SBA loans require unlimited personal guarantees from 20%+ owners. Some asset-based and revenue-based lenders will lend without one but charge premium rates for it.
How long does it take to get funded?
Working capital loans fund in 1–3 days. Term loans typically 3–7 days. Equipment financing 5–10 days. SBA loans 30–90 days due to additional underwriting and government processing. Revenue-based financing can fund in 24 hours.
Can I get a business loan with no revenue?
Most lenders require a track record of at least $100,000 in annual revenue. Pre-revenue startups generally cannot access traditional small-business loans and instead rely on personal credit, friends-and-family rounds, SBA microloans, or equity capital.
What documentation will I need?
At minimum: 2 years of business tax returns, 3–6 months of business bank statements, a business formation document, and a personal financial statement. SBA loans require significantly more, including detailed business plans and financial projections. Equipment loans add equipment quotes.
Can I apply to multiple lenders at once?
Yes, and you should. Soft-pull prequalification at multiple lenders does not affect your credit, and rates can vary by 5–10 percentage points across lenders for the same borrower. Hard pulls within a 14-day window typically count as a single inquiry for FICO scoring purposes.