Small Business Financing Guide — SBA Loans, Equipment Financing & More

SBA Loans — The Gold Standard

The Small Business Administration (SBA) guarantees loans made by approved lenders, reducing the lender's risk and allowing better terms for borrowers. SBA 7(a) loan: The most popular SBA program. Maximum loan amount: $5 million. Uses: working capital, equipment, real estate, refinancing debt, acquisition. Terms: 10 years for equipment and working capital, 25 years for real estate. Interest rates: prime rate + 2-4% for loans under $350,000 (typically 9-12% as of 2026). Down payment: 10-30%. Collateral: SBA requires collateral for loans over $25,000, but the SBA will not decline a loan solely for lack of collateral (unlike conventional lenders). Personal guarantee is required from all owners with 20%+ ownership. SBA 504 loan: Specifically for purchasing fixed assets (real estate, heavy equipment). Structure: a bank provides 50% financing, a Certified Development Company provides 40% (backed by an SBA-guaranteed debenture), and you provide 10% down. Terms: 20-25 years for real estate, 10-20 years for equipment. Interest rates: approximately 7-9% fixed. The 504 program offers the lowest rates for real estate acquisition. SBA Microloan: Up to $50,000 through nonprofit intermediaries. Terms: up to 6 years. Interest rates: 8-13%. Best for startups and businesses that cannot qualify for a 7(a) loan. Eligibility: For-profit business operating in the US, owner must have invested their own time and money (sweat equity), business must meet SBA size standards (typically under $15 million in net worth or $5 million in net income), and must have exhausted other financing options. What SBA lenders look for: Strong credit score (680+ ideal, 650+ minimum), 2+ years in business (startups can qualify but need a stronger application), sufficient cash flow to cover debt payments (1.25x debt service coverage ratio minimum), and collateral to secure the loan. SBA loans for franchise purchases →

Equipment Financing and Leasing

If you need to buy equipment — vehicles, machinery, computers, restaurant equipment, medical devices — equipment financing is often the most accessible option. Equipment loans: You borrow the purchase price and own the equipment from day one. The equipment serves as collateral. Terms: 3-10 years depending on the equipment's useful life. Rates: 8-25% depending on credit. Down payment: 0-20%. Equipment leases: You lease the equipment for a fixed term (12-60 months) with the option to buy at the end. Lease payments are typically lower than loan payments. Operating leases (where you return the equipment at the end) keep the equipment off your balance sheet but cost more over time. Capital leases (where you own the equipment at the end) are effectively loans structured as leases. Advantages: Easier approval than unsecured loans (equipment is collateral), faster funding (24-72 hours from approval), and the equipment generates revenue that pays for itself. Disadvantages: Higher interest rates than SBA loans, the equipment depreciates faster than you pay down the loan (you may owe more than the equipment is worth), and default means losing the equipment plus potentially a deficiency judgment. Best for: Businesses that need specific, identifiable equipment with a clear resale value. Construction companies (excavators, bulldozers), restaurants (ovens, refrigerators), medical practices (imaging machines, dental chairs), and transportation companies (trucks, vans). Calculate how much revenue new equipment must generate →

Invoice Factoring and Accounts Receivable Financing

If your business invoices customers and waits 30-90 days for payment, invoice factoring lets you get cash immediately. How factoring works: You sell your outstanding invoices to a factoring company at a discount (typically 2-5% of the invoice value per month). The factor advances you 80-95% of the invoice value immediately. When your customer pays the invoice, the factor gives you the remaining balance minus their fee. Recourse vs non-recourse: Recourse factoring (more common, lower fees) — if your customer does not pay, you must buy back the invoice. Non-recourse factoring (less common, higher fees) — the factor absorbs the loss if the customer defaults, but only for specific reasons (typically bankruptcy, not disputes over good/service quality). Cost: Effective APR on factoring is typically 20-60% APR, making it one of the more expensive financing options. However, for businesses with thin margins and slow-paying customers, factoring can be cheaper than the opportunity cost of waiting 60+ days for payment. Accounts receivable (AR) lines of credit: A bank or fintech lender advances you a percentage of your outstanding receivables at lower rates (prime + 3-8%) than factoring. You retain ownership of the receivables. AR lines require stronger credit and financial reporting than factoring. Best for: Staffing agencies, trucking companies, manufacturing businesses, and any B2B business with net-30/60/90 payment terms. How financing choices affect business valuation →

Merchant Cash Advances and Alternative Lending

Merchant cash advances (MCAs) are not loans — they are advances against future credit card sales. The lender gives you a lump sum and collects repayment as a fixed percentage of your daily credit card transactions. How MCAs work: You receive $50,000. The factor rate is 1.3 (you must repay $65,000 total). The holdback is 15% of daily credit card sales. If you process $1,000 in credit card sales on a given day, $150 goes to the MCA lender. The advance is typically repaid within 6-18 months. Cost: Factor rates of 1.2-1.5 translate to effective APRs of 40-150%+. MCAs are the most expensive form of business financing. When MCAs make sense: When you need cash quickly and cannot qualify for any other financing (poor credit, very new business, seasonal revenue patterns), when the MCA is used for a high-ROI purpose (buying inventory for a known busy season), and when the holdback percentage is low enough that it does not strain operations. Risks: The daily holdback reduces your cash flow every day, not just when you have excess cash. If revenue drops, the holdback continues until the advance is repaid. Many MCA borrowers get trapped in a cycle of refinancing — they take a new advance to pay off the old one, and the effective interest compounds. Alternatives: Business lines of credit from banks or fintech lenders (Kabbage, OnDeck, BlueVine) offer lower rates for qualified businesses. These are revolving credit lines at 10-30% APR — still expensive but significantly cheaper than MCAs. Monitoring your business debt ratios →

FAQs

What is the best financing option for a startup?

Startups face the most financing challenges because they lack revenue history. The best options: SBA 7(a) loan (if you have good credit and some collateral), equipment financing (the equipment itself serves as collateral), personal savings or family loans (lowest cost, highest risk to personal finances), or crowdfunding (equity crowdfunding via platforms like WeFunder or StartEngine for larger amounts, rewards-based via Kickstarter for product launches). Avoid MCAs and high-interest factoring at startup stage — the payments will consume too much of your early revenue.

What credit score do I need for a small business loan?

SBA loans: typically 650+ (680+ preferred). Bank term loans: 680+. Equipment financing: 600+. Online lenders: 550+. Merchant cash advances: no minimum credit score (underwriting is based on daily credit card volume). The higher your credit score, the lower your interest rate and the more options you have. Work on improving your personal and business credit scores before applying for financing.

How long does it take to get a small business loan?

SBA loans: 30-90 days from application to funding (longest but best terms). Bank loans: 2-6 weeks. Online lenders: 24-72 hours. Equipment financing: 24-72 hours. Merchant cash advances: 24-48 hours. Factor in the timeline when planning your financing — if you need cash next week, an online lender or MCA may be your only option. If you can wait 2-3 months, the SBA loan will save you thousands in interest.

Can I get a business loan with no revenue?

Traditional banks and SBA lenders require some revenue history (typically 6-12 months minimum). Startups with no revenue can use: equipment financing (the equipment is collateral), personal loans (based on your personal credit and income), crowdfunding (backers fund your idea), or friends and family. Some online lenders will lend against future revenue based on your industry, experience, and business plan, but rates are high.

What is debt service coverage ratio (DSCR)?

DSCR measures your ability to repay debt: net operating income divided by total debt payments. A DSCR of 1.25 means your business generates 25% more cash flow than needed to cover debt payments. SBA lenders require a minimum of 1.15-1.25x DSCR. Conventional lenders require 1.25-1.50x. If your DSCR is below 1.0, your business does not generate enough cash to cover existing debt — you are losing money on debt service. Calculate your DSCR before applying for any loan to know where you stand.