A business loan is financing you borrow to start, run, or grow a company and repay over time, usually with interest or a fixed fee. The term covers a wide range of products, from long-term SBA loans and bank term loans to lines of credit, equipment financing, invoice factoring, and revenue-based funding, each with different costs, speeds, and qualification rules. The right choice depends on three things: how fast you need the money, how much it will cost you all-in, and what a lender can actually see in your credit and bank statements. This overview walks through every major option in plain language, shows realistic cost examples, and explains what approval really looks like, so you can shortlist the two or three products worth applying for instead of guessing.
Key takeaways
- Business loans range from low-cost, slow SBA and bank loans to fast revenue-based funding that can fund in 24 to 48 hours.
- Revenue-based and MCA lenders often approve from FICO 500+ because they weigh bank deposits and monthly revenue over credit score.
- Compare offers by total dollar cost, not just rate: a $50,000 advance at a 1.3 factor rate means $65,000 repaid.
- Revenue-based offers commonly land between 50% and 150% of average monthly revenue, with minimums often around $10,000.
- Most small-business financing carries a personal guarantee even when it is labeled unsecured.
- No legitimate lender can guarantee approval before reviewing your application and bank statements.
- A clean three-to-six-month bank statement history with consistent deposits and no overdrafts materially improves your offers.
The Main Types of Business Loans
Most business financing falls into a handful of categories. Understanding what each one is built for saves you from applying to the wrong product and collecting hard credit inquiries you did not need.
- Term loans: A lump sum repaid in fixed installments over months or years. Best for one-time investments like a build-out or a large purchase. Banks offer the lowest rates but the strictest requirements; online lenders are faster but cost more.
- SBA loans: Loans issued by banks and partners but partially guaranteed by the U.S. Small Business Administration. The 7(a) program is the most common, with amounts up to $5 million and long terms. Rates are among the lowest available, but paperwork and funding timelines are the longest.
- Business lines of credit: A revolving limit you draw from as needed and only pay interest on what you use. Ideal for smoothing cash flow and covering recurring gaps rather than a single big project.
- Equipment financing: The equipment itself serves as collateral, so approval is often easier. Common for vehicles, machinery, kitchen gear, and technology.
- Invoice factoring and financing: You advance cash against unpaid invoices. Useful for B2B businesses waiting 30 to 90 days to get paid.
- Revenue-based financing and merchant cash advances (MCAs): You receive a lump sum and repay a fixed amount or a share of daily or weekly sales. Approval leans heavily on bank-deposit history and monthly revenue rather than credit score, which makes it accessible when banks say no. Costs are higher, so it fits urgent or short-term needs.
- Microloans: Smaller amounts, often up to $50,000, from nonprofit and community lenders. Good for startups and businesses in underserved markets.
What Business Loans Actually Cost
Cost is where borrowers get surprised. The interest rate is only part of the picture; origination fees, the repayment term, and how the price is quoted all change what you really pay. Watch especially for products quoted as a factor rate (like 1.3) rather than an APR, because a factor rate does not shrink when you repay early.
The figures below are illustrative ranges to show how products compare. Your actual pricing depends on your credit, revenue, time in business, and the lender.
| Loan type | Typical cost (for example) | Common term | Typical funding speed |
|---|---|---|---|
| Bank term loan | 7%-13% APR | 1-5 years | 1-4 weeks |
| SBA 7(a) loan | Prime + ~3%-4.75% | 5-10+ years | 3-8 weeks |
| Online term loan | 15%-45% APR | 6 months-3 years | 1-3 days |
| Line of credit | 12%-30% APR | Revolving | 1-5 days |
| Equipment financing | 8%-25% APR | 2-7 years | 2-7 days |
| Invoice factoring | 1%-4% per invoice/month | Until invoice paid | 1-3 days |
| Revenue-based / MCA | Factor rate ~1.1-1.5 | 3-18 months | 24-48 hours |
A quick way to compare fairly: convert everything to a total dollar cost. On a $50,000 advance at a 1.3 factor rate, for example, you repay $65,000, so the cost of capital is $15,000 regardless of how the payments are structured. Ask every lender for the total repayment amount in dollars before you sign.
How Lenders Decide: Qualification Reality
Every lender weighs five things, but they weigh them very differently. Knowing which factor a given product cares about most tells you where to apply.
- Credit score (FICO): Banks and SBA lenders often want 680+. Many online lenders start around 600. Revenue-based lenders can approve at FICO 500+ because they rely more on cash flow.
- Monthly revenue and bank deposits: This is the single most important factor for revenue-based funding. Lenders read your last three to six months of business bank statements looking for consistent deposits, healthy average daily balances, and few negative days or overdrafts.
- Time in business: Banks usually want two or more years. Many online and revenue-based lenders fund businesses with six months or more of operating history.
- Existing debt and cash flow: Lenders check whether your revenue comfortably covers current obligations plus the new payment. Stacked short-term advances are a common decline reason.
- Industry and collateral: Some industries are restricted. Secured loans price better because the lender has recourse if you default.
| Profile (for example) | FICO ~520, 9 months open, $40k/mo revenue | FICO ~710, 4 years open, $80k/mo revenue |
|---|---|---|
| Bank term loan | Unlikely | Strong candidate |
| SBA 7(a) | Unlikely | Good candidate |
| Online line of credit | Possible, higher cost | Likely, better terms |
| Revenue-based / MCA | Likely, based on deposits | Likely, use as bridge only |
No legitimate lender can promise approval before reviewing your application and bank statements. Be cautious of any offer described as guaranteed.
How Much Can You Borrow?
Loan size is tied to your capacity to repay, not just what you want. Two rules of thumb help you set realistic expectations.
For revenue-based funding, offers commonly land somewhere between 50% and 150% of your average monthly revenue. A business doing $40,000 a month, for example, might see offers in the $20,000 to $60,000 range, with the minimum advance around $10,000. For amortizing loans, lenders look at debt-service coverage, meaning your net operating income should exceed the new payment with room to spare, often targeting income at 1.25 times the debt payment or more.
Before you apply, calculate the payment you can actually sustain in a slow month, not an average one. A loan that is comfortable in your best month and painful in your worst is a cash-flow trap, and short-term daily or weekly repayment products are especially sensitive to seasonal dips.
Secured vs. Unsecured, and Fixed vs. Revolving
Two structural choices shape every loan.
Secured vs. unsecured: Secured loans are backed by collateral such as equipment, real estate, or invoices, which lowers the lender's risk and usually your rate. Unsecured loans require no specific asset but often carry a personal guarantee, meaning you are personally responsible if the business cannot pay. Most small-business financing involves a personal guarantee even when it is called unsecured, so read that clause carefully.
Fixed installment vs. revolving: A term loan gives you a set amount with a predictable payoff date, which is best for a defined project. A line of credit lets you borrow, repay, and borrow again, which is best for recurring or unpredictable needs. Many established businesses keep a line of credit open for flexibility and use term financing for large one-time investments.
How to Apply, Step by Step
A clean application gets better offers and fewer declines. Work through these steps before you submit anything.
- Define the purpose and amount. A specific use (buy inventory, hire, cover a gap) helps you match to the right product and borrow only what you need.
- Check your numbers. Pull your personal FICO, estimate your average monthly revenue and daily balance, and confirm your time in business.
- Gather documents. Most lenders want a business bank statement history, a completed application, and a form of ID; larger loans add tax returns, financial statements, and sometimes a business plan.
- Clean up your bank statements. A few months of consistent deposits and no overdrafts materially improves revenue-based offers.
- Compare two or three real offers. Ask each for the total dollar cost, the term, the payment frequency, any fees, and prepayment terms.
- Read the agreement. Confirm the payment amount and cadence, whether there is a personal guarantee, and whether early payoff saves you money.
Applying to a curated marketplace can surface several offers from one submission, which reduces the number of hard inquiries compared with applying to lenders one at a time.
Documents checklist
| Document | Usually required for |
|---|---|
| 3-6 months business bank statements | Almost every product |
| Government-issued ID | All applications |
| Business tax returns | Banks, SBA, larger loans |
| Profit and loss / balance sheet | Banks, SBA |
| Voided check / bank verification | Funding disbursement |
Choosing the Right Loan for Your Situation
Match the product to the job and the honest state of your credit and cash flow.
- Lowest possible cost, and you can wait: Pursue a bank term loan or SBA loan. Best for strong credit, two-plus years in business, and clean financials.
- Recurring cash-flow gaps: A line of credit gives flexibility without repaying a lump sum you are not using.
- Buying a specific asset: Equipment financing usually beats a general loan because the asset secures it.
- Slow-paying B2B customers: Invoice factoring turns receivables into working capital.
- Fast cash, or credit below bank thresholds: Revenue-based financing approves on deposits and revenue more than score, funds in as little as 24 to 48 hours, and works from FICO 500+. Use it for time-sensitive opportunities or short bridges, and confirm the total dollar cost first.
A practical sequence: if you have time and strong credit, start with the cheapest option and work outward only if you are declined. If you need money this week, start with the fast options but borrow the minimum that solves the problem.
Frequently asked questions
What credit score do I need for a business loan?
It depends entirely on the product. Banks and SBA lenders typically want a personal FICO of 680 or higher. Many online lenders start around 600. Revenue-based and merchant cash advance products can approve from FICO 500+ because they weigh your bank-deposit history and monthly revenue more heavily than your score.
How fast can I get funded?
Speed varies widely. SBA loans can take three to eight weeks, and bank term loans one to four weeks. Online term loans and lines of credit often fund in one to five days. Revenue-based financing is usually the fastest, with funding often in 24 to 48 hours after approval and document verification.
What is the minimum I can borrow?
It varies by lender and product. Microloans can start well under $10,000, while revenue-based funding commonly has a minimum around $10,000. Offer sizes are typically tied to your revenue, so a lender will size the amount to what your deposits show you can repay.
What is the difference between an APR and a factor rate?
APR expresses cost as an annualized percentage and generally shrinks if you repay early. A factor rate is a flat multiplier, such as 1.3, applied to the amount borrowed; on a $50,000 advance that means $65,000 repaid regardless of how quickly you pay. Always ask for the total repayment in dollars so you can compare products fairly.
Do I need collateral to get a business loan?
Not always. Secured loans require collateral and usually offer lower rates. Many online and revenue-based products are unsecured, but most still require a personal guarantee, meaning you are personally responsible if the business cannot repay. Read the guarantee clause before signing.
How much of my revenue can I qualify to borrow?
For revenue-based funding, offers commonly range from roughly 50% to 150% of average monthly revenue. A business with $40,000 in monthly revenue, for example, might see offers between about $20,000 and $60,000. Amortizing lenders instead look at whether your net income comfortably covers the new payment.
Can a lender guarantee approval?
No. Any legitimate lender must review your application and bank statements before extending an offer, and approval is never guaranteed. Treat any promise of guaranteed funding as a red flag and read all terms carefully before signing.
What documents do I need to apply?
At minimum, most lenders want three to six months of business bank statements, a completed application, and a government-issued ID. Banks, SBA loans, and larger amounts typically also require business tax returns and financial statements such as a profit and loss and balance sheet.
