Which business loan is actually right for you?
Six common ways to fund a business — compared side by side on cost, speed, and who each one fits. Scroll down for per-option deep dives, borrower profiles, and watch-outs. Not sure which fits you? Get matched in 60 seconds, free.
See my funding options →Quick answer
For the lowest cost, SBA 7(a) loans run about 9.75–12.75% APR (on loans over $50K) but take 30–90 days and require 650+ FICO. For speed (same-day to 3 days), a merchant cash advance or line of credit works but costs significantly more (40–150% effective APR for MCAs, 10–50% for lines of credit). The right option is the lowest-cost product you can qualify for given your timeline.
At a glance: all six options compared
| Option | Best for | Typical amount | Typical cost | Speed | |
|---|---|---|---|---|---|
| Term Loan | A one-time investment you'll repay on a set schedule | $25K–$500K | 8–30% APR | 3–7 days | Guide → |
| Line of Credit | Ongoing cash-flow gaps and emergencies | $10K–$250K | 10–50% APR | 1–3 days | Guide → |
| SBA 7(a) Loan | Established, profitable businesses wanting the lowest cost | $50K–$5M | Prime + 3–6% | 30–90 days | Guide → |
| Merchant Cash Advance | Strong daily card sales and you need cash now | $10K–$500K | 1.1–1.5 factor rate | Same day | Guide → |
| Invoice Factoring | B2B businesses waiting on unpaid invoices | Up to 90% of AR | 1–5% / 30 days | 1–2 days | Guide → |
| Equipment Financing | Buying a specific vehicle, machine, or asset | Up to 100% of cost | 6–25% APR | 2–7 days | Guide → |
Last verified: June 2026 — Sources
- Term loan APR (8–30%): Federal Reserve Small Business Credit Survey 2025 (online lenders); published rate schedules from OnDeck, Credibly, and Funding Circle.
- Line of credit APR (10–50%): Published terms from Bluevine, Fundbox, and OnDeck (online revolvers); traditional bank HELOC/commercial lines skew lower (Prime + 1–4%).
- SBA 7(a) rate (Prime + 3–6% on loans over $50K, ~9.75–12.75% APR ceiling): SBA.gov SOP 50 10 maximum-allowable-rate table (variable spread tiered by loan size: Prime + 6.5% on loans ≤$50K, Prime + 6% on $50K–$250K, Prime + 3% above $250K); Federal Reserve H.15 Selected Interest Rates (WSJ Prime Rate 6.75%, effective December 2025 and unchanged through June 2026).
- MCA factor rate (1.1–1.5×): Published advance agreements from Credibly, Rapid Finance, and Reliant Funding; Small Business Credit Alliance industry survey.
- Invoice factoring fee (1–5% / 30 days): International Factoring Association 2024 rate survey; published schedules from altLINE, TCI Business Capital, and Triumph Business Capital.
- Equipment financing APR (6–25%): Equipment Leasing and Finance Foundation (ELFF) 2025 survey; SBA 504 debenture rates (effective ~5.87–6.01% as of May 2026); online-lender rates (Crest Capital, Currency Capital) for lower credit profiles.
Amounts and costs vary by lender, credit profile, and business performance. These are typical industry ranges — not offers or guarantees of approval.
Each option in depth
What it is, who it fits, and what to watch for — with links to the full guide and the most relevant article for each type.
Term Loan
A lump sum you repay in fixed monthly installments over 1–10 years — the structure most people picture when they think "business loan." Online lenders can fund in 3–7 days; banks and SBA take longer but cost less.
Best use cases
- Buying equipment, vehicles, or fixtures
- Leasehold improvements or renovation
- Hiring a team for a new contract or expansion
Typical borrower
2+ years in business, 650+ FICO, $25K+/month in revenue
Business Line of Credit
Revolving credit up to a set limit — draw what you need, pay interest only on the outstanding balance, repay, and draw again. A line of credit is the most flexible business funding tool, but rates are higher than a term loan.
Best use cases
- Smoothing seasonal revenue gaps and payroll shortfalls
- Covering operating costs while waiting on large invoices
- A standing emergency cash reserve you can tap instantly
Typical borrower
600–625+ FICO (varies by lender), 1+ year in business, $10K+/month revenue
SBA 7(a) Loan
A government-backed term loan where the SBA guarantees 75–85% of the lender's risk, enabling rates and terms most small businesses can't get conventionally. As of June 2026, the rate ceiling on 7(a) loans over $50,000 is Prime + 3–6% (9.75%–12.75% APR) — and well-qualified borrowers often price below the cap. Smaller loans of $50,000 or less carry a higher maximum spread of Prime + 6.5% (up to 13.25%).
Best use cases
- Large equipment purchases or commercial real estate
- Business acquisitions or partner buy-ins
- Refinancing high-cost debt (MCAs, short-term loans) at a lower rate
Typical borrower
650+ FICO, 2+ years in business, profitable, U.S. citizen or national (as of March 1, 2026, lawful permanent residents and other non-citizens can no longer hold any ownership stake in an SBA borrower)
Merchant Cash Advance
An advance on your future card or bank deposits. You receive a lump sum and repay a fixed total (principal × factor rate) via a daily holdback — a set percentage of your revenue — until the balance is paid. Because repayment is percentage-based, a slow month won't put you in default, but it extends the term.
Best use cases
- Retail or restaurant covering a short-term cash crunch
- Pre-buying inventory ahead of a peak season
- Emergency repair or opportunity when no line of credit exists
Typical borrower
500+ FICO (some providers), 6+ months in business, $10K+/month in card or bank deposits
Invoice Factoring
Sell your unpaid B2B invoices to a factoring company at a discount. You receive 80–90% of the invoice value upfront; the factor collects from your customer and remits the balance minus its fee (typically 1–5% per 30-day period). No monthly debt payments — the invoice IS the collateral.
Best use cases
- Staffing, construction, or logistics firms waiting 30–90 days on invoices
- Covering payroll between large B2B project payments
- Scaling a B2B business without taking on term debt
Typical borrower
Your customers' creditworthiness matters more than yours; many factors set no minimum FICO for the business owner
Equipment Financing
A secured loan or lease where the equipment itself serves as collateral. Lenders typically finance 80–100% of the purchase price at 6–25% APR over 2–7 years. Because the asset backs the loan, qualification is often easier than for an unsecured term loan.
Best use cases
- Restaurant kitchen equipment or build-out
- Commercial vehicles, trucks, or fleet expansion
- Manufacturing, medical, or construction machinery
Typical borrower
580+ FICO, typically 1+ year in business — time-in-business requirements are often lower than unsecured loans
How to choose — start with one question
"I need cash this week."
Speed beats price. A merchant cash advance or line of credit can fund in 1–3 days. You'll pay more — but a deal you can act on today beats a cheaper one that arrives too late.
"I want the lowest cost and can wait."
An SBA loan is usually the cheapest money available to small businesses, with the longest terms. The trade-off is weeks of paperwork — worth it for planned investments, not emergencies.
"I'm buying a specific asset."
Equipment financing uses the asset as its own collateral, so it's often easier to qualify for than an unsecured loan. If you're a B2B business waiting on invoices, factoring turns those into cash today.
"I just need a cushion for ups and downs."
A line of credit lets you draw only what you need and pay interest only on that. It's the most flexible tool for smoothing out uneven cash flow — establish it before you need it.
Common questions
What is the cheapest small business loan in 2026?
SBA 7(a) loans are the lowest-cost option for qualified borrowers — on loans over $50,000 the rate ceiling is about 9.75%–12.75% APR in mid-2026 (WSJ Prime 6.75% plus the 3%–6% maximum lender spread), and many borrowers price below it. Conventional bank term loans are comparable at 7%–20%. Both require 650+ FICO and 2+ years in business. For borrowers who don't qualify, a business line of credit from an online lender (10–50% APR) is typically the next-cheapest option.
Which business loan is easiest to qualify for?
Merchant cash advances have the lowest qualification bar — some providers approve at 500 FICO after just 6 months in business. The tradeoff is effective APRs of 40–150%+. Invoice factoring is also accessible because the factor cares more about your customers' creditworthiness than yours. Equipment financing approves at lower FICO scores than unsecured loans because the asset serves as its own collateral.
Can I get a business loan with bad credit?
Yes, but your options narrow and the cost rises as your credit score falls. Below 600 FICO, merchant cash advances and revenue-based financing are the most accessible — they weigh monthly revenue more heavily than credit. Invoice factoring has no FICO minimum for the business owner. Online lenders like Credibly and Fundbox approve lines of credit at 550–600 FICO. Below 500, most options are MCAs with very high holdback rates.
What is the difference between a business line of credit and a term loan?
A term loan is a one-time lump sum you repay in fixed installments — best for a single large investment. A line of credit is revolving: you draw up to a limit, repay it, and draw again — best for recurring cash-flow gaps or emergencies. Term loans usually carry lower rates, but a line of credit offers flexibility no fixed loan can match.
How do I choose between all these business loan types?
Start with two questions: (1) How fast do you need the money? If you need funds in 1–3 days, an MCA or line of credit is your only realistic option. (2) What's the lowest rate you can qualify for? Work down from SBA → bank term loan → online term loan → line of credit → MCA. The product you qualify for at the lowest rate is almost always the right answer. Use the free quiz at businesscashguide.com/tools/quiz for a recommendation based on your specific profile.
Free tools to help you decide
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