Choosing the right business loan can save thousands in interest and provide the capital your business needs to grow. Here’s how the major options compare.
Business Loan Types Compared
| Loan Type | Amount | Rate (APR) | Term | Time to Fund | Best For |
|---|---|---|---|---|---|
| SBA 7(a) Loan | Up to $5M | 6-10% | 7-25 years | 2-3 months | Established businesses, large purchases |
| SBA 504 Loan | Up to $5.5M | 5-7% | 10-25 years | 2-3 months | Real estate, equipment |
| SBA Microloan | Up to $50K | 8-13% | Up to 6 years | 1-2 months | Startups, small needs |
| Bank Term Loan | $25K-$5M | 7-12% | 1-10 years | 2-8 weeks | Established businesses, strong credit |
| Online Term Loan | $5K-$500K | 10-30% | 3 months-5 years | 1-5 days | Quick funding, weaker credit |
| Business Line of Credit | $10K-$500K | 8-25% | Revolving | 1-7 days | Working capital, cash flow gaps |
| Equipment Financing | Up to 100% of equipment cost | 6-15% | Term of equipment life | 1-2 weeks | Specific equipment purchases |
| Invoice Factoring | Up to 90% of invoice value | 10-30% (factor rate) | Until invoice paid | 1-3 days | B2B businesses with outstanding invoices |
| Merchant Cash Advance | $5K-$500K | 20-50%+ (factor rate) | 3-18 months | 1-3 days | Last resort (very expensive) |
SBA Loans: The Gold Standard
SBA 7(a) Loan Details
| Feature | Details |
|---|---|
| Maximum amount | $5,000,000 |
| Interest rates | Prime + 2.25-4.75% (currently ~8-11%) |
| Terms | Up to 10 years (working capital), 25 years (real estate) |
| Down payment | 10-20% |
| Guarantee fee | 0-3.75% of guaranteed portion |
| Personal guarantee | Required |
| Collateral | Required for loans over $350,000 |
| Time in business | Typically 2+ years |
| Minimum credit score | 680+ (most lenders prefer 700+) |
Qualification Requirements by Lender Type
| Requirement | SBA Loan | Bank Loan | Online Lender |
|---|---|---|---|
| Credit score | 680+ | 700+ | 500-600+ |
| Time in business | 2+ years | 2+ years | 6 months+ |
| Annual revenue | $100K+ | $250K+ | $50K+ |
| Collateral | Sometimes | Usually | Rarely |
| Business plan | Yes | Yes | No |
| Financial statements | Yes | Yes | Sometimes |
| Approval rate | ~50% | ~25-40% | ~60-80% |
| Time to funding | 2-3 months | 2-8 weeks | 1-5 days |
Interest Rate Comparison by Credit Score
| Credit Score | SBA Loan | Bank Term Loan | Online Lender |
|---|---|---|---|
| 750+ | 6-8% | 7-9% | 10-15% |
| 700-749 | 8-10% | 9-11% | 12-20% |
| 650-699 | 10-12% | May not qualify | 15-25% |
| Below 650 | May not qualify | Unlikely | 20-30%+ |
Cost Comparison: $100,000 Loan
| Loan Type | Rate | Term | Monthly Payment | Total Interest Paid |
|---|---|---|---|---|
| SBA 7(a) | 8% | 10 years | $1,213 | $45,600 |
| Bank term loan | 10% | 5 years | $2,125 | $27,500 |
| Online term loan | 18% | 3 years | $3,615 | $30,150 |
| Online term loan | 25% | 2 years | $5,293 | $27,030 |
| Merchant cash advance | 40% factor | 12 months | ~$11,667 | $40,000 |
An SBA loan at 8% costs $45,600 over 10 years. A merchant cash advance can cost $40,000 in just 12 months.
The Bottom Line
SBA loans offer the best rates and terms for small businesses but require strong credit, established revenue, and patience (2-3 months to fund). Bank loans are the next best option. Online lenders are useful for quick capital needs but at significantly higher costs. Avoid merchant cash advances—their effective rates of 40-100%+ make them the most expensive form of business capital. Always compare the total cost of borrowing, not just the monthly payment.