Whether you are opening your first location, buying equipment, or covering a cash flow gap, the right business loan can help your company grow. The wrong one can drain your profits with high rates and hidden fees.
This guide explains the main types of small business loans in the US, which lenders are worth comparing, what you need to qualify, and how to apply step by step.
Rates and terms change often and depend on your credit, revenue and time in business. Always confirm current details with the lender.
Quick Comparison: Types of Small Business Loans
| Loan Type | Best For | Typical Speed | Typical Cost |
|---|---|---|---|
| SBA 7(a) loan | General purposes, lowest rates | Slower (weeks to months) | Low |
| SBA 504 loan | Real estate and heavy equipment | Slower | Low |
| Term loan | Expansion, large purchases | Days to weeks | Low to moderate |
| Business line of credit | Ongoing cash flow needs | Days | Moderate |
| Equipment financing | Buying machinery or vehicles | Days | Low to moderate |
| Invoice financing | Unpaid customer invoices | Days | Moderate to high |
| Merchant cash advance | Emergencies only | Very fast | Very high |
| Microloan | Startups and small amounts | Weeks | Moderate |
1. SBA Loans: Best Overall for Low Rates
SBA loans are partially guaranteed by the US Small Business Administration, which lets banks offer lower rates and longer terms. The SBA does not lend directly. You apply through an approved lender.
Pros
- Some of the lowest rates and longest repayment terms available
- Can be used for working capital, equipment, refinancing and more
- Good for businesses that cannot get conventional bank loans
Cons
- Slow approval and a lot of paperwork
- Stricter requirements on credit and documentation
- Collateral and a personal guarantee are often required
Best for: Established businesses that can wait for funding and want the lowest cost.
2. Traditional Bank Term Loans: Best for Established Businesses
Banks like Wells Fargo, Bank of America, Chase and local credit unions offer term loans with fixed repayment schedules. If you have strong credit and a few years of history, these can be very affordable.
Pros: Competitive rates, relationship benefits, predictable payments
Cons: Hard to qualify for, slower process
Best for: Businesses with strong credit, solid revenue and time in business.
3. Online Lenders: Best for Speed and Flexibility
Online lenders such as OnDeck, Fundbox, BlueVine, Funding Circle and Lendio (a marketplace) approve applications faster and have more flexible requirements than banks.
Pros: Quick decisions, simple online applications, more lenient on credit
Cons: Rates are usually higher than banks or SBA loans
Best for: Newer businesses or owners who need money fast.
4. Business Lines of Credit: Best for Cash Flow
A line of credit lets you borrow up to a limit, repay, and borrow again. You pay interest only on what you use.
Pros: Flexible, good for seasonal or unpredictable expenses
Cons: Variable rates, possible maintenance fees
Best for: Covering payroll gaps, inventory purchases and short-term needs.
5. Equipment Financing: Best for Buying Machinery
The equipment you buy acts as collateral, which often makes approval easier and rates lower.
Pros: Easier qualification, keeps other assets free
Cons: Can only be used for equipment, and you risk losing it if you default
Best for: Restaurants, construction, medical practices, manufacturers and trucking.
6. Invoice Financing: Best for B2B Businesses
If customers take 30 to 90 days to pay, invoice financing lets you borrow against those unpaid invoices.
Pros: Fast access to cash you are already owed
Cons: Fees can add up
Best for: Businesses with long payment cycles.
7. Microloans: Best for Startups and Small Needs
Nonprofit and community lenders (including the SBA Microloan program) offer smaller loans, along with business coaching.
Pros: Accessible to new businesses and lower-credit owners, mentorship included
Cons: Limited loan amounts
Best for: Early-stage founders who need modest funding.
8. Merchant Cash Advances: Use With Caution
A merchant cash advance gives you a lump sum in exchange for a share of your future sales. It is fast, but it often costs far more than a loan when you convert the fees to an annual rate.
Best for: True emergencies only, and only after comparing every other option.
Typical Requirements to Qualify
Every lender is different, but they usually look at:
- Personal credit score: Higher scores get better rates
- Time in business: Many lenders want at least 6 months to 2 years
- Annual revenue: Minimums vary widely
- Business plan and use of funds: Especially for startups and SBA loans
- Debt-to-income and existing debts
- Collateral: Required for many secured loans
- Personal guarantee: Common for small businesses
Documents You Will Likely Need
- Government ID
- Business license and registration documents
- EIN (Employer Identification Number)
- Business and personal tax returns (usually 2 years)
- Bank statements (usually 3 to 12 months)
- Profit and loss statement and balance sheet
- Business plan or financial projections (especially for startups and SBA loans)
- Details of existing debts
- Collateral documentation, if applicable
How to Compare Business Loan Offers
1. Look at the APR, not just the interest rate. APR includes most fees and shows the true yearly cost.
2. Check the repayment term. Longer terms lower payments but increase total interest.
3. Understand the fees. Origination fees, prepayment penalties, late fees and draw fees can add up.
4. Confirm the funding speed. If you need cash quickly, ask for realistic timelines.
5. Watch for factor rates. Some lenders show a factor rate (like 1.3) rather than an APR. Convert it to compare properly.
6. Read reviews and check complaints. Look at the Better Business Bureau and other independent reviews.
Step-by-Step: How to Apply for a Small Business Loan
- Decide how much you need and why. Borrow only what you can justify and repay.
- Check your credit. Review both personal and business credit reports and fix errors.
- Choose the loan type that fits your purpose.
- Gather your documents using the list above.
- Compare several lenders. Use prequalification tools that use a soft credit check when available.
- Submit your application. Answer everything accurately and completely.
- Review the offer carefully. Check APR, term, fees and collateral before signing.
- Use the funds as planned and set up automatic payments.
How to Improve Your Chances of Approval
- Build your personal credit before applying
- Separate business and personal finances
- Keep clean, up-to-date financial records
- Reduce existing debt
- Show consistent revenue
- Offer collateral if you have it
- Apply for the right amount, not the maximum
- Prepare a clear explanation of how the loan will grow your business
Common Mistakes to Avoid
- Taking the first offer without comparing
- Ignoring the APR and only looking at the monthly payment
- Borrowing more than you need
- Choosing a merchant cash advance when cheaper options exist
- Skipping the fine print on prepayment penalties
- Applying to too many lenders with hard credit pulls at once
- Mixing personal and business expenses
Frequently Asked Questions
What is the easiest business loan to get?
Online loans, invoice financing, equipment financing and merchant cash advances are typically easier to qualify for than bank or SBA loans, but they can be more expensive.
What credit score do I need for a small business loan?
It varies. Banks and SBA lenders generally want good credit, while some online lenders accept lower scores at higher rates.
Can I get a business loan with no revenue?
It is difficult. Startups may look at microloans, SBA microloans, personal loans, grants or equipment financing.
How long does it take to get approved?
Online lenders can fund in a day or a few days. SBA and bank loans often take several weeks or longer.
Do I need collateral?
Not always. Many online loans are unsecured, but they may require a personal guarantee or blanket lien.
Will applying hurt my credit?
A hard inquiry can slightly lower your score. Use prequalification with soft checks first when you can.
Are business loan interest payments tax-deductible?
Generally, interest on business loans can be deductible, but speak to a tax professional about your situation.
Final Verdict
The best business loan depends on your goals, credit and how quickly you need the money. SBA loans usually offer the lowest cost, banks are great if you qualify, online lenders win on speed, and lines of credit and equipment financing work well for specific needs. Compare at least three offers, focus on APR and total cost, and borrow only what your business can comfortably repay.
Disclaimer: This article is for general information only and is not financial, legal or tax advice. Loan terms, rates and eligibility vary by lender and applicant. Confirm all details with the lender and consult a qualified professional before borrowing.