Common business loan terms or criteria Typical criteria include repayment term, loan amount, interest rate, qualification requirements, and funding timeline. can vary based on the type of financing you seek—such as term loans, business credit lines, equipment financing, and merchant cash advances. Depending on the loan type, various terms and conditions of the loan can be applicable and are often influenced by the lender’s risk tolerance and your creditworthiness as a borrower.
Loan Type | |||||
|---|---|---|---|---|---|
Term Loan | 3 months to 10 years | Varies | 6% and up |
| 1 to 7 days |
Up to 25 years | Up to $5 million | Varies | Varies per loan program | 30 to 90 days | |
Business Line of Credit | 6 months to 5 years | $250,000 | 8% to 30% |
| 1 to 14 days |
Microloan | Up to 6 years | $50,000 | 8% to 13% |
| 2 to 10 days |
Equipment Financing | 3 months to 10 years | Up to 100% equipment cost | 7% to 30% |
| 1 to 7 days |
Invoice Factoring | 30 to 90 days | Up to 100% invoice amount | 1% to 2% factoring fee |
| 24 to 48 hours |
Merchant Cash Advance | 3 to 24 months | $1 million | Factor rates between 1.10x and 1.50x |
| 1 to 5 days |
Purchase Order Financing | 30 to 120 days | Up to $10 million | 20% to 80% |
| 1 to 21 days |
1. Term Loans
Term loans provide working capital to businesses for various purposes. These loans typically offer a single lump sum payment and have a fixed repayment period in which the borrower makes installments of principal and interest until maturity. Repayment terms can vary and be short- or long-term.
- Repayment term: 3 months to 10 years
- Loan amount: Varies, typically $1+ million
- Interest rate: 6% and up
- Qualification requirements: 600+ credit score, 2 years time in business, $120,000 in annual revenue
- Funding timeline: 1 to 7 days
2. SBA Loans
SBA loans offer some of the most favorable loan rates and terms available. These government-backed loan programs can provide financing opportunities to qualified businesses and support various business needs, such as working capital, purchasing real estate, funding repairs, and more.
- Repayment term: Up to 25 years
- Loan amount: Up to $5 million
- Interest rate: Rates vary per loan program but are typically associated with a base rate plus an additional basis point percentage. Current rates can be found in our article SBA loan rates.
- Qualification requirements: Specific requirements will vary per loan program. Read our article on SBA loan requirements to learn more.
- Funding timeline: 30 to 90 days
3. Business Lines of Credit
A business line of credit can be secured or unsecured and acts as a revolving credit facility. This means you can borrow funds on an as-needed basis up to a certain loan amount during the designated repayment term. The funds can be repaid and reused over time, which makes a business credit line an ideal financing option for short-term or unplanned expenses.
- Repayment term: 6 months to 5 years
- Loan amount: Up to $250,000
- Interest rate: Varies; generally ranges from 8% to 30%
- Qualification requirements: 600+ credit score, 6 months time in business, $100,000+ annual revenue
- Funding timeline: 1 to 14 days
4. Microloans
As its name suggests, a microloan is a smaller type of loan offered to businesses with limited financing needs. It is offered by the SBA and participating community lenders and generally has flexible rates, terms, and qualifications.
- Repayment term: Up to 6 years
- Loan amount: Up to $50,000
- Interest rate: 8 to 13%
- Qualification requirement: 620+ credit score, 0 to 2 years time in business
- Funding timeline: 2 to 10 days
5. Equipment Financing
Whether it be via a loan or lease, equipment financing can provide opportunities to acquire equipment for various business needs. The equipment typically serves as collateral for the loan, and interest rates are typically lower than other business loan types.
- Repayment terms: 3 months to 10 years
- Loan amounts: Up to 100% of the cost of the equipment
- Interest rates: 7% to 30%
- Qualification requirement: 550+ credit score, 0 to 2 years time in business
- Funding timeline: 1 to 7 days
6. Invoice Factoring
Invoice factoring involves borrowing money and selling off outstanding invoices to a third-party company, which will then seek payment from your customers. The unpaid invoices act as collateral, and you can essentially get an advance on the unpaid invoices. This is best suited for businesses with creditworthy customers, as it’s common that factoring companies consider this as a qualification requirement to ensure timely payment.
- Repayment term: 30 to 90 days
- Loan amount: Up to 100% of the invoiced amount
- Interest rate: Factoring fee of 1% to 2%
- Qualification requirement: Invoice payable within 90 days, 6 months time in business, creditworthy customers
- Funding timeline: 24 to 48 hours
7. Merchant Cash Advances
A merchant cash advance (MCA) allows businesses to borrow money in advance of making credit card sales. It’s a riskier financing option commonly used by businesses in dire need of funding. It is often prepaid and secured using automatic payments from credit card sales and is best suited for businesses with high sales volume.
- Repayment term: 3 to 24 months
- Loan amount: Up to $1 million
- Interest rate: Factor rates between 1.10x and 1.50x
- Qualification requirement: 6 to 12 months time in business, $30,000 to $150,000 in annual revenue or credit card sales
- Funding timeline: 1 to 5 days
8. Purchase Order Financing
When using purchase order financing, a creditor pays your supplier to provide goods and services to be delivered to your customers. This is a form of short-term financing that allows businesses without resources to fulfill orders and continue operations. It does require finished goods to be supplied to a business or government entity and often uses the purchase order itself as collateral.
- Repayment term: 30 to 120 days
- Loan amount: Up to $10 million
- Interest rate: 20% to 80%
- Qualification requirements: 0 to 12 months time in business, 20% to 30% profit margin, creditworthy customers
- Funding timeline: 1 to 21 days
How to Determine What Loan Terms Are Right for You
When determining what business loan terms will meet your financing needs, you should evaluate your budget and business goals to ensure that you get financing you can afford. When reviewing loan terms, ensure you meet necessary small business loan requirements and consider the following questions:
- How much funding will you need to meet business goals?
- How do you plan to repay the loan?
- Do you have collateral to offer?
- Do you need short or long-term financing?
- Do you meet the minimum qualification requirements of the lender?
- What do your business’s future revenue projections look like?
- Does the loan you seek have a prepayment penalty?
Oftentimes, loans may have what’s known as a prepayment penalty as a condition of the loan. Essentially, this means the borrower has to pay a penalty fee if they pay off the loan before maturity.
It’s usually represented as a percentage fee of the remaining principal balance, and the percentage fee declines in tiers with each passing year. This penalty is usually put in place to ensure that the lender still makes money off of the transaction and doesn’t lose out on interest charged if the borrower repays the loan in full before maturity.
Frequently Asked Questions (FAQs)
Generally, loan terms include criteria such as the repayment period, loan amount, interest rate, and required qualifications. These criteria will vary depending on loan type and the lender; however, they are all factors commonly associated with most business loan terms.
Business loans can have repayment terms ranging from a few months to many years. The term depends on your financing needs, the loan type utilized, and the lender’s preferences.
Repayment terms for SBA loans can vary depending on the loan program you choose. However, the most common repayment term is up to 25 years.
Bottom Line
Typical small business loan terms can vary depending on the loan type, the lender, and your financing needs. They commonly include criteria such as repayment period, loan amount, interest rate, and required qualifications. It’s best to know your budget and manage your expectations of terms before pursuing a business loan to ensure you get the best deal. It’s also worthwhile to compare various lenders and their loan offerings before signing a loan agreement.
