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Getting the right business loan can mean the difference between scaling your company and paying far more than necessary in interest. Whether you're a startup looking for your first line of credit or an established business seeking expansion capital, understanding your options is the first step to making a smart borrowing decision.
This guide breaks down every major business loan type, what lenders actually look for, and how to maximize your chances of approval at the lowest possible rate.
The most popular government-backed loan. Lower rates and longer terms than conventional loans, but more paperwork and 60–90 day approval times.
Rates: 10.5–13.5%
A lump sum repaid over a fixed period. Best for established businesses with strong financials who need predictable monthly payments.
Rates: 6–13%
Flexible revolving credit you draw from as needed. Ideal for managing cash flow gaps and short-term expenses rather than large one-time purchases.
Rates: 8–24%
Loans specifically for purchasing business equipment, where the equipment itself serves as collateral. Often easier to qualify for than unsecured loans.
Rates: 4–20%
Borrow against outstanding invoices to improve cash flow. You get 70–90% of the invoice value upfront, with the remainder paid when your customer pays.
Rates: 1–5% per month
An advance on future credit card sales, repaid as a percentage of daily sales. Fast approval but the most expensive option — avoid unless truly necessary.
Factor rate: 1.1–1.5x
Beware of Merchant Cash Advances: While MCA lenders advertise "factor rates" instead of interest rates, the true APR can exceed 100–350%. Always convert to APR before comparing loan products.
Interest rates vary significantly by lender type, loan product, and your business's financial profile. Here's what you can realistically expect in the current rate environment:
| Loan Type | Rate Range | Best For |
|---|---|---|
| SBA 7(a) Loan | 10.5–13.5% | Established businesses, lower risk |
| SBA 504 Loan | 6–7% | Real estate & large equipment |
| Bank Term Loan | 6–13% | Strong credit, 2+ years in business |
| Credit Union Loan | 5–12% | Members with good standing |
| Online Term Loan | 7–30% | Faster approval, weaker credit |
| Business Line of Credit | 8–24% | Flexible working capital |
| Equipment Financing | 4–20% | Equipment purchases |
| Invoice Financing | 12–60% APR | B2B businesses with slow-paying clients |
Rate tip: Your personal credit score, business credit score, time in business, annual revenue, and whether you offer collateral are the five biggest factors that determine your rate. Improving any one of these before applying can save you thousands over the life of your loan.
Lenders evaluate business loan applications across several dimensions. Understanding what they look for — and preparing your application accordingly — dramatically increases your odds of approval at a competitive rate.
For most small business loans, lenders review your personal credit score. Banks typically require 680+. SBA loans require 620+. Online lenders may approve scores as low as 550, but at much higher rates. Check your score for free at annualcreditreport.com before applying.
Your business credit score (Dun & Bradstreet PAYDEX, Experian Business, Equifax Business) tells lenders how reliably your business pays its vendors and creditors. A PAYDEX score of 80+ is generally considered good. Build it by opening trade lines and paying on time.
Most traditional banks require at least 2 years in business. SBA loans typically require 2+ years. Online lenders may approve businesses with 6–12 months of history, but at higher rates. Startups under 6 months old generally need to look at startup-specific financing or personal loans.
Lenders want to see consistent revenue that comfortably covers your loan payments. Most require annual revenue of at least $100,000–$250,000. Your Debt Service Coverage Ratio (DSCR) — annual net operating income divided by annual debt payments — should be at least 1.25.
Secured loans backed by collateral (equipment, real estate, inventory, accounts receivable) typically offer lower rates and higher approval odds. SBA loans over $25,000 generally require collateral. If you can offer real estate or equipment as security, you'll get significantly better terms.
For larger loans or newer businesses, lenders want to see a solid business plan with realistic financial projections. They need confidence that your business will generate enough cash flow to repay the loan even in slower months.
Dispute any errors on your personal and business credit reports. Pay down revolving balances to below 30% utilization. Even a 20-point score improvement can move you to a better rate tier.
Banks are far more likely to approve loans for existing customers. Open a business checking account with your target lender at least 6 months before applying.
Have 2 years of tax returns, 3–6 months of bank statements, profit & loss statements, and a current balance sheet ready before you apply. Incomplete applications delay or kill approvals.
Get quotes from at least 3 lenders before committing. Rate differences of 2–3% on a $100,000 loan add up to tens of thousands of dollars over a 5-year term.
Putting 10–20% down on equipment or real estate loans significantly improves approval odds and reduces your interest rate by reducing lender risk.
Apply when your financials look strongest — after a good revenue quarter, not before one. Lenders look at trailing 12-month performance, so timing matters.
SBA loans are partially guaranteed by the U.S. Small Business Administration, which allows lenders to offer lower rates and longer repayment terms than they otherwise could. For qualifying businesses, SBA loans are almost always the best deal available.
The most flexible SBA program. Use it for working capital, equipment, real estate, or refinancing existing debt. Loan amounts up to $5 million. Terms up to 25 years for real estate.
Best for: General business purposes
Specifically for major fixed assets — commercial real estate and large equipment. Rates are below-market because they're partially funded by bonds. Typically requires 10% down.
Best for: Real estate & large equipment
The main downside of SBA loans is time. Traditional SBA approval takes 60–90 days. The SBA Express program offers faster turnaround (36 hours for the SBA decision) but caps loans at $500,000 and typically carries slightly higher rates.
SBA loan tip: Work with an SBA Preferred Lender (PLP). These lenders have delegated authority to approve SBA loans in-house without waiting for the SBA to review the application, cutting approval time significantly. Search for PLP lenders at sba.gov/lendermatch.