The main types of business financing
| Type | Typical size | Typical cost | Best for |
|---|---|---|---|
| SBA 7(a) loan | Up to $5 million | Variable rate capped at prime + 3% to 6.5% | Working capital, buying a business, expansion |
| SBA 504 loan | Up to $5.5 million | Fixed rate tied to 10-year Treasury | Real estate and long-life equipment |
| SBA microloan | Up to $50,000 | Generally 8%–13% | Startups and small working-capital needs |
| Online term loan or line of credit | Varies by lender | Typically 14%–99% APR | Fast funding, shorter history |
| Equipment financing | Cost of the equipment | Roughly 4%–45% APR | Vehicles and machinery |
| Invoice factoring | Share of unpaid invoices | Often 1%–5% of the invoice per month | Businesses waiting on customer payments |
| Merchant cash advance | Based on card sales | Effective APRs of 40%–350% | A last resort |
Source: SBA.gov; NerdWallet (2025–2026). Checked October 2026.
Start with SBA programs
The SBA doesn’t usually lend directly. It guarantees part of loans made by banks and other lenders, which lets them offer longer terms and capped rates. With the prime rate at 7% in early October 2026, the maximum variable rate on a 7(a) loan ranges from 10% for loans over $350,000 to 13.5% for loans of $50,000 or less. Most 7(a) loans run up to 10 years, or up to 25 years for real estate.
The trade-offs are paperwork and eligibility. You must run a for-profit business in the U.S., meet SBA size standards, show you can repay, and be unable to get credit on reasonable terms elsewhere. Since March 1, 2026, every owner of a 7(a) or 504 applicant must be a U.S. citizen or national whose principal residence is in the U.S. For loans approved from October 1, 2026, the upfront SBA guaranty fee is 2% of the guaranteed portion on loans up to $150,000, with higher tiers above that, but it is waived on loans up to $700,000 for manufacturers and certain rural and food supply-chain businesses.
SBA microloans, made through nonprofit intermediaries, average about $13,000 and can be easier to get for newer businesses. The SBA’s free Lender Match tool sends your request to participating lenders; it isn’t an application and doesn’t commit you to anything.
What lenders look at
According to the SBA, lenders review your personal and business credit, cash flow, financial statements such as profit-and-loss and cash-flow statements, and your business plan. Online lenders often accept less time in business but charge more for it. Building a separate business credit history helps over time; our guide on how to build business credit explains how.
For small, recurring expenses, a business credit card paid in full each month can cost nothing in interest, while a loan suits larger one-time investments.
How to compare offers
- Get an APR, not a factor rate. A merchant cash advance quoted at a 1.4 factor rate on $50,000 means repaying $70,000. Repaid in about seven months, that works out to roughly 125% APR. California and nine other states now require providers to disclose costs on many commercial financing offers.
- Add every fee. Include origination fees, the SBA guaranty fee if it’s passed to you, and any other charges.
- Check the repayment schedule. Daily or weekly withdrawals strain cash flow more than monthly payments.
- Read the collateral and guarantee terms. Check whether you’re signing a personal guarantee, which puts your own assets on the line.
- Check prepayment rules. Paying off a cash advance early often saves little, because the fee is fixed up front.
Our small business loans guide compares named lenders’ minimum rates, loan sizes and time-in-business requirements.
Common mistakes
- Borrowing to cover a structural loss. Debt buys time; it doesn’t fix margins.
- Stacking cash advances. Using one advance to pay another compounds the cost, and SBA loan proceeds may no longer be used to refinance merchant cash advance debt.
- Trusting “no collateral, no guarantee” pitches. The FTC’s 2021 settlement with cash advance provider Yellowstone Capital ($9.8 million) involved alleged false claims of that kind, undisclosed fees and unauthorized withdrawals.
- Signing a confession of judgment without legal advice. Many cash advance contracts include one, which can let the provider move quickly to collect if you fall behind.
Free help
SBA resource partners offer advice for free or at low cost. SCORE matches you with volunteer business mentors, and Small Business Development Centers provide free counseling and low-cost training. Women’s Business Centers and Veterans Business Outreach Centers offer similar help.
Guides in this section
Frequently asked questions
What is the cheapest type of small business loan?
SBA-backed loans and bank loans are usually cheapest. SBA 7(a) variable rates are capped at the prime rate plus 3% to 6.5%, which worked out to 10% to 13.5% with prime at 7% in October 2026. They also require the most paperwork.
Who qualifies for an SBA loan?
Generally a for-profit U.S. business that meets SBA size standards, can show it is able to repay, and can't get credit on reasonable terms elsewhere. Since March 1, 2026, all owners of 7(a) and 504 applicants must be U.S. citizens or nationals living in the U.S.
What is a merchant cash advance?
A provider gives you a lump sum in exchange for a share of future card sales, repaid through daily or weekly withdrawals. Costs are quoted as factor rates, typically 1.1 to 1.5, which NerdWallet says translate to effective APRs of about 40% to 350%.
Can I get a business loan as a startup?
It's harder. SBA microloans of up to $50,000 through nonprofit intermediaries, equipment financing secured by the equipment, and some online lenders accept shorter histories. Some bank loans require more history; Bank of America's unsecured business term loan, for example, requires two years in business.
Where can I get free help with a business loan?
SBA resource partners such as SCORE mentors and Small Business Development Centers offer free or low-cost counseling. The SBA's Lender Match tool connects you with interested lenders at no cost.
Sources
- SBA – 7(a) loan program terms, conditions and eligibility
- SBA – 504 loans
- SBA – Microloans
- SBA – Lender Match
- SBA – How to have a stand-out business credit application
- SBA – Resource Partner Network brochure
- Bankrate – Wall Street Journal prime rate
- Coleman Report – New FY 2027 SBA fee relief
- Compliance Alliance – SBA revised ownership citizenship and residency requirements
- NerdWallet – Merchant cash advance: how it works
- Consumer Finance Monitor – FTC settles claims against merchant cash advance providers
- Venable – State commercial financing disclosure laws
Rates, fees and terms change often. Figures were checked in October 2026; confirm current details with the provider before you apply.