What Are Common Small Business Loan Terms?

• The type of small business loan you need
• Which type of lender you choose
• Interest rates and fees
• Repayment terms
• Aspects of your business (e.g. age, credit, revenue) 

What Is a Loan Repayment Term?

Typical Small Business Loan Terms

• Repayment terms: How long you have to pay back the loan 
• Loan amounts: Total amount you can borrow from a lender
• Interest rates: Amount the lender charges for the loan, usually stated as a percentage 
• Time to funding: Amount of time it will take to receive the actual funds
• Requirements/eligibility: Conditions that determine if you qualify for financing

SBA 7(a) Loans

• Repayment term: Maximum of 10 years for inventory, working capital, or equipment; 25 years max for real estate loans
• Loan amounts: $5 million is the maximum business loan amount for all 7(a) loans except Express and Export Express, which have maximums of $350,000 and $500,000, respectively
• Interest rates: Can be fixed or variable and are determined by the lender using guidelines on rate maximums from the SBA. For variable, if the loan’s maturity is:
  • Under seven years and the amount is:
    • $25,000 or less: Base rate plus 4.25%
    • $25,000 to $50,000: Base rate plus 3.25%
    • $50,000 or higher: Base rate plus 2.25%
  • Over seven years and the amount is:
    • $25,000 or less: Base rate plus 4.75%
    • $25,000 to $50,000: Base rate plus 3.75%
    • $50,000 or higher: Base rate plus 2.75%
• Time to funding: Varies depending on program, but turnaround time can be as short as 36 hours or take up to two weeks
• Eligibility: Lenders will have the final say on whether you’re approved for an SBA 7(a) loan, but at a minimum, your business must meet the following eligibility requirements set by the SBA:
  • Is a for-profit operations
  • Currently does or proposes to do business in the U.S. or its territories
  • You have a reasonable amount of equity in the business
  • You have exhausted all other business and personal financing options

Term Loans

• Repayment term: Short-term (3 to 24 months), mid-term (up to 5 years), or long-term (up to 10 years)  
• Loan amounts: Varies depending on type of lender and program, but generally start around $50,000 and can go over $1 million, with average around $500,000
• Interest rates: Depends on type of lender, amount of loan, and other qualifying factors. 
• Time to funding: Varies depending on program, but can be a few days or a few weeks
• Eligibility: Typically determined by the lender based on loan amount, creditworthiness, and the amount of time you’ve been in business.

Bank Loans for Small Businesses

• Repayment term: Typical business loan terms are 3 to 10 years
• Loan amounts: Average business loan amount is around $500,000
• Interest rates: Could be as low as 3% or as high as 22%, but will ultimately depend on the lender, loan type, and assessed risk of lending to the borrower. 
• Time to funding: Banks often have longer approval processes due to their stricter qualifying factors. They can be anywhere from one week to two months.
• Eligibility: Typically determined by the lender based on loan amount, creditworthiness, and the amount of time you’ve been in business.

Business Line of Credit

• Repayment term: Typically 6 months to 5 years
• Loan amounts: Credit limit is determined by the lender but generally can be between $1,000 to $250,000
• Interest rates: Depends on lender and creditworthiness, but can be from 10% to 99% 
• Time to funding: Online lenders typically approve within a few days, while traditional banks may take up to 2 weeks.
• Eligibility: Banks may require a credit score over 680 and a minimum two years in business. Online lenders are good for new businesses or those with less-than-stellar credit as their qualifications are typically less stringent than many banks.

Microloans

• Repayment term:  Up to 6 years for SBA microloans. Private and peer-to-peer lenders will set their own business loan terms. 
• Loan amounts: Business loan amounts vary depending on lender, but are generally up to $50,000
• Interest rates: Depend on type of lender, loan amount, and your business’ eligibility, but rates are generally higher than other loan types. For SBA microloans, interest rates are generally between 8% and 13%.
• Time to funding: Online lenders may approve within 24 hours, while lenders with stricter application requirements may take days or weeks. 
• Eligibility: Traditional lenders will base funding off of creditworthiness, collateral, and business history. Alternative lenders may have fewer or different qualifications, and take your business’ cause into consideration. 

Invoice Factoring or Financing

• Repayment term: Typically 30 to 90 days to reflect the terms set for customers paying the invoice
• Loan amounts: Typically, a percentage—up to 100%, depending on the lender—of the amount of each invoice
• Interest rates: On top of a processing fee of typically 3%, the  factoring fee is generally  1% to 2% of the total amount of each invoice and charged each week until the customer pays their invoice 
• Time to funding: As little as 24 hours
• Eligibility: Must be a business who invoices customers, which are usually B2B organizations. Lenders may also consider your creditworthiness and your customers’ ability to pay the invoices.

Equipment Financing

• Repayment term: Generally, typical business loan terms are the same as the life of the equipment; could be a few months or many years.
• Loan amounts: Can be up to 100% of equipment cost
• Interest rates: Typically, 2 to 20%
• Time to funding: Online lenders may approve within 24 hours, while banks may take up to a few weeks.

Inventory Financing

• Repayment term: Typically up to 1 year, depending on the inventory, or possibly longer for revolving inventory lines of credit.
• Loan amounts: A percentage of your inventory, generally 20% to 65%
• Interest rates: Depending on the lender type, could be anywhere from 0% to 80%
• Time to funding: Depends on the lender but could take just a day for online lenders up to a couple of months for traditional banks
• Eligibility: Be in business for at least 6 months to 1 year, meet inventory minimum set by the lender, and be willing to have inventory audited if the lender requires it

Merchant Cash Advance

• Repayment term: Typically, 3 to 18 months, but depends on individual merchant lending company 
• Loan amounts: Business loan amounts usually up to $500,000
• Interest rates: Factor rate typically between 1.1 to 1.5, multiplied by the cash advance amount (Ex: $5,000 cash advance × 1.3 factor rate = $6,500 owed to the merchant lending company)
• Time to funding: Can be as little as 24 hours
• Eligibility: Lenders typically look at financing documents like monthly sales and bank statements to determine if they’ll be able to make the amount advanced back.

Which Business Loan Terms Are Right for You?

• What is the total cost of the funding you need, including interest rates and fees?
• What are your revenue projections for the business loan terms you’re considering?
• What items are the most essential to purchase for your business? Are there items that can wait?
• What are your regular business expenses and how do you plan to cover them?
• How much working capital do you currently have to work with?
• Do you have collateral you can offer to lenders? 
• Has cash flow been healthy or restricted? Would financing help or hurt it?