Financing Types

A business term loan is a lump sum of money you borrow and repay over a set period with fixed or variable interest payments.

Key Features

• Loan amounts: Typically $5,000 to $5 million
• Repayment terms: 1 to 25 years depending on the loan type
• Interest rates: 6% to 30%+ APR based on qualifications
• Payment frequency: Usually monthly, sometimes weekly or daily

Best For

Major investments like equipment, expansion, real estate, or large inventory purchases where you need a significant amount upfront.

Short-Term Loans (3-18 months)

• Faster approval and funding
• Higher interest rates (typically 10-45% APR)
• Less stringent requirements
• Daily or weekly payments common
• Best for immediate cash needs or short-term opportunities

Long-Term Loans (2-25 years)

• Lower interest rates (typically 6-15% APR)
• Stricter qualification requirements
• Longer approval process
• Monthly payments
• Best for major investments like real estate or equipment

A business line of credit is a flexible financing option that gives you access to funds up to a set limit. You only pay interest on what you actually use.

How It Works

• You're approved for a credit limit (e.g., $50,000)
• Draw funds as needed, up to your limit
• Pay interest only on the amount borrowed
• As you repay, funds become available again (revolving)

Typical Terms

• Credit limits: $10,000 to $5,000,000
• Interest rates: 8% to 24% APR
• Draw period: 6 months to ongoing

Best For

Managing cash flow gaps, seasonal fluctuations, unexpected expenses, or when you need flexible access to capital.

Term Loan

• Receive full amount upfront
• Fixed repayment schedule
• Pay interest on full amount from day one
• Must reapply for additional funds

Line of Credit

• Draw funds as needed
• Flexible payments (usually minimum required)
• Pay interest only on what you use
• Revolving access—funds replenish as you repay

Bottom line: Use a term loan when you know exactly how much you need. Use a line of credit for ongoing or unpredictable funding needs.

SBA loans are small business loans partially guaranteed by the U.S. Small Business Administration. The guarantee reduces risk for lenders, allowing them to offer better terms.

Main SBA Loan Programs

• 7(a) Loans: Most common, up to $5 million for working capital, equipment, expansion
• 504 Loans: Up to $5.5 million for major fixed assets (real estate, equipment)
• Microloans: Up to $50,000 for startups and smaller needs
• Express Loans: Faster approval, up to $500,000

Typical Terms

• Interest rates: Prime + 2.25% to 4.75% (currently ~9-12%)
• Terms: 10-25 years depending on use
• Down payment: 10-20% typically required

SBA loans have more stringent requirements than alternative financing:

General Requirements

• Credit score: 650+ (680+ preferred)
• Time in business: 2+ years (some programs accept less)
• Revenue: Varies, but must demonstrate ability to repay
• Business type: For-profit, operating in the U.S.
• Size: Must meet SBA small business size standards

Documentation Needed

• Business and personal tax returns (2-3 years)
• Financial statements (P&L, balance sheet)
• Business plan or loan proposal
• Collateral documentation
• Personal financial statement

Timeline: Expect 30-90 days from application to funding.

A merchant cash advance is a lump sum payment in exchange for a percentage of your future business revenue. It's technically not a loan—it's a purchase of future receivables.

How It Works

• You receive a lump sum (the advance)
• Repay via a fixed percentage of daily revenue (the remittance rate)
• Payments adjust based on your sales volume
• Continues until the total payback amount is reached

Key Terms

• Factor rate: Typically 1.1 to 1.5 (e.g., borrow $10,000, repay $12,000-$15,000)
• Remittance rate: Usually 10-20% of daily revenue
• Funding amounts: $5,000 to $5,000,000
• Timeline: Often same-day or next-day funding

Best For

Businesses needing fast capital with consistent revenue but lower credit scores. Note: MCAs tend to have higher effective costs than traditional loans.

MCAs use factor rates instead of APR, which can make costs confusing. Here's how to understand the true cost:

Example Calculation

• Advance amount: $50,000
• Factor rate: 1.3
• Total repayment: $50,000 × 1.3 = $65,000
• Cost of capital: $15,000

Effective APR

If repaid over 6 months, this $15,000 cost translates to roughly 60%+ APR. Shorter repayment = higher effective APR.

When It Makes Sense

Despite high costs, MCAs can make sense when:

• You need funding immediately
• You don't qualify for other options
• The opportunity ROI exceeds the cost
• You need flexible payments tied to revenue

Equipment financing is a loan or lease specifically for purchasing business equipment. The equipment itself typically serves as collateral.

Types of Equipment Financing

• Equipment loans: You own the equipment outright after paying off the loan
• Equipment leases: You rent the equipment with option to purchase at end of term

Typical Terms

• Financing amount: Up to 100% of equipment cost
• Terms: 2-7 years (usually matches equipment lifespan)
• Interest rates: 6-30% depending on credit
• Down payment: 0-20%

What Can Be Financed?

Vehicles, machinery, computers, medical equipment, restaurant equipment, construction equipment, and more.