Business Loan Terms 2024 – Newsweek Vault (2024)

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Common Business Loan Terms

When it comes to borrowing money, there’s no one-size-fits-all solution for small businesses. There are several types of small business loans, and you may find repayment terms spanning anywhere from a few months to 10 years or longer. Here are some of the most common types of financing for small businesses.

Term Loans

Traditional term loans, also known as commercial loans, offer a lump sum upfront that you pay back over a fixed period. You can find short-term, medium-term and long-term loans from various lenders, such as banks, credit unions and online lenders.

While there’s no set-in-stone definition for these terms, a short-term loan may span a few months to two years, while a medium-term loan might have a term of three or five years and a long-term loan could be repaid over 10 years.

You can find term loans for as little as $1,000 up to amounts of $1 million or more. Interest rates vary, but may start somewhere around eight percent, with the lowest rates going to borrowers with strong credit and a stable financial outlook.

Along with meeting credit requirements, you’ll need to meet other criteria to qualify for a term loan. Some lenders want to see that your business makes a minimum of $100,000 per year and has been in business for at least six months or a year.

Some lenders, especially online ones, can process your application quickly and disburse your funds within a business day or two. But banks usually take longer, so you may have to wait a few weeks to receive your term loan.

SBA Loans

SBA loans are small business loans that are guaranteed by the U.S. Small Business Administration. They tend to come with competitive interest rates, and some loan types have lengthy repayment terms as long as 25 years.

Both SBA 7(a) and SBA 504 loans, for instance, offer maximum repayment terms of 25 years and loan amounts up to $5 million. Business owners working on certain energy projects can access 504 loans as high as $5.5 million.

You can apply for an SBA loan with one of the SBA’s partner lenders, such as a bank or credit union. You’ll need to meet credit and income requirements, and the process typically takes a month or longer.


If you need a smaller loan amount, a microloan could make sense for your business. Miicroloans are term loans of $50,000 or less and have repayment terms that span several months up to a few years.

Microloan providers are often nonprofit organizations or government agencies seeking to support new startups, borrowers with bad credit or entrepreneurs from underrepresented communities. As a result, the criteria to qualify for a microloan may be more flexible than a typical term loan, but there may be more restrictions around how you can spend the money.

The SBA also offers microloans up to $50,000 with interest rates around eight percent to 13 percent. The business loan terms on an SBA microloan span up to six years.

Business Lines of Credit

While term loans provide your total funding amount upfront, business lines of credit let you borrow money on an as-needed basis. They’re a form of revolving credit that you can borrow from and pay back as you go.

As with a term loan, you’ll need to meet a lender’s requirements for credit and revenue to qualify for a business line of credit. The line of credit may only be available for a certain number of months or years, though it may be possible to renew it.

Compared to business credit cards, lines of credit can have higher limits and lower rates depending on your creditworthiness and other factors. Your maximum credit limit may start around $1,000 and go up to $250,000 or higher. You’ll only have to pay interest on the amount you borrow, and that amount will become available again after you pay it back.

A business line of credit could make sense if you have unpredictable expenses or seasonal gaps in cash flow, but watch out for potentially high interest rates compared to term loans.

Equipment Financing

If you need equipment for your business, such as a bulldozer, restaurant oven or even an office printer, equipment financing could help you pay for it. An equipment loan is secured by the equipment you purchase.

Since it’s a secured loan, an equipment loan may have lower interest rates and less stringent credit requirements than an unsecured business loan. Keep in mind, though, that the lender could seize your collateral if you don’t pay back your loan.

Your repayment terms may be fixed or tied to the lifespan of the equipment, and you may need to put down a down payment upfront. Some lenders can turn around your financing request quickly, while others may take a few weeks to process your loan.

Invoice Factoring

Invoice factoring is an alternative to borrowing a business loan that can get you fast access to cash. It involves selling your outstanding invoices to a third-party company, which in turn typically collects payments from your customers.

You might receive around 70 percent to 90 percent of your invoice value as an advance rate. The factoring company will pay you the remaining balance once it gets payments from customers, minus its factoring fees.

Invoice factoring may not be your most affordable option for borrowing money. But it could help you out in a pinch if you need quick, relatively easy access to cash or don’t have strong enough credit to qualify for an alternative type of business loan.

Merchant Cash Advance

A merchant cash advance is another financing option, especially for businesses that aren’t yet established enough to qualify for another type of business loan. With a merchant cash advance, you borrow money against your future sales.

You’ll typically pay back your advance with a percentage of your credit card sales, which may be automatically debited for repayment. A merchant cash advance lender may look at your credit card and bank statements when determining whether you qualify for an advance.

Rather than charging an interest rate, lenders usually use a factor rate of 1.1 to 1.5. This means you’ll pay back 110% to 150% of the amount you borrowed. Your terms may span three to 18 months, and the amount you can borrow typically ranges from around $5,000 to $500,000. Merchant cash advances are often one of the most expensive forms of business financing, especially compared to loans from a traditional bank.

Business Loan Terms: Overview

Loan TypeLoan AmountsInterest RatesRepayment TermsTime to FundRequirements
Term loans$1,000 to $1 million+8% to 36%6 months to 12 yearsOne day to several months$100,000+ in annual revenue
6 months or longer in business
Credit score of 600+
SBA loansUp to $5.5 million, depending on loan typeBase rate plus a percentage, depending on loan typeUp to 25 years30 to 90 daysCredit score of 640+
Meet SBA’s business size guidelines and other requirements
MicroloansUp to $50,000 (SBA microloans)8% to 13% (SBA microloans)Up to 6 years (SBA microloans)30 to 90 daysCredit and revenue requirements (plus SBA criteria for SBA microloans)
Business lines of creditUp to $250,0005% to 40%6 to 18 monthsOne day to a couple weeks$100,000 in annual revenue
6 months or longer in business
Credit score of 600+
Equipment financingUp to cost of equipmentStarting around 7.5%May be several years or tied to lifespan of equipmentOne day to a couple weeksCredit, revenue, and time in business requirements
Equipment acts as collateral
Invoice factoringUp to total invoice amountProcessing fee around 3%, plus factoring fee of 1% to 2% of invoice amountUp to 90 daysOne day or longerCredit requirements
Financial documents
Merchant cash advance$5,000 to $500,000Factor rate around 1.1 to 1.5 (multiplied by cash advance amount)3 to 18 monthsOne day or longerMonthly cash flow
Bank statements

Frequently Asked Questions

How long Is a Typical Business Loan Term?

Business loan terms can vary widely depending on the type of loan and lender. You can find short-term loans with repayment terms that span six months to two years, as well as long-term business loans with repayment terms of up to 10 years or longer. Some types of SBA loans offer repayment terms as long as 25 years.

What Is a Typical SBA Loan Term?

A typical SBA loan term depends on the loan type and amount. SBA 7(a) and CDC/504 loans offer repayment terms up to 25 years. SBA microloans, on the other hand, have maximum terms of six years.

How Do Business Loan Terms Affect Your Repayment?

The terms you get on a business loan have a major impact on your monthly payments and the amount of interest you’ll pay. A long term business loan will come with lower monthly payments than a short term loan. But being in debt longer means interest has more time to accrue, so your costs of borrowing will be higher overall. On the flip side, a shorter loan term will have higher monthly payments, but you’ll get out of debt faster and pay less interest over the life of your loan.

As an expert in business financing, I can provide valuable insights into the various concepts discussed in the article on common business loan terms. My expertise stems from a deep understanding of the financial landscape for small businesses and extensive knowledge of the lending industry.

The article covers several key aspects of business loans, including different types of loans, their repayment terms, interest rates, and the requirements for qualification. Let's break down the information based on the concepts used in the article:

  1. Term Loans:

    • Definition: Lump sum upfront loan with fixed repayment over a specified period.
    • Types: Short-term (a few months to two years), medium-term (three to five years), and long-term (up to 10 years).
    • Loan Amounts: $1,000 to $1 million or more.
    • Interest Rates: Vary, starting around eight percent.
    • Qualification Criteria: Credit requirements, minimum annual revenue of $100,000, and business existence for at least six months to a year.
    • Processing Time: Varies (quick for online lenders, longer for banks).
  2. SBA Loans:

    • Definition: Small Business Administration guaranteed loans with competitive interest rates.
    • Types: SBA 7(a) and SBA 504 loans.
    • Maximum Repayment Terms: Up to 25 years.
    • Maximum Loan Amounts: Up to $5.5 million.
    • Application Process: Through SBA partner lenders, such as banks or credit unions.
    • Qualification Criteria: Credit and income requirements.
  3. Microloans:

    • Definition: Small loans (up to $50,000) with flexible terms.
    • Repayment Terms: Several months to a few years.
    • Providers: Nonprofit organizations, government agencies, and SBA.
    • Criteria: More flexible than term loans, targeted at startups, bad credit, or underrepresented entrepreneurs.
    • SBA Microloans: Interest rates around eight percent to 13%, terms up to six years.
  4. Business Lines of Credit:

    • Definition: Revolving credit allowing borrowing as needed.
    • Loan Limits: Up to $250,000 or higher.
    • Repayment Terms: 6 to 18 months.
    • Criteria: Credit and revenue requirements.
    • Advantage: Flexibility for unpredictable expenses or cash flow gaps.
  5. Equipment Financing:

    • Definition: Loan secured by purchased equipment.
    • Interest Rates: Starting around 7.5%.
    • Repayment Terms: Several years or tied to equipment lifespan.
    • Criteria: Credit, revenue, and time in business requirements.
    • Equipment as Collateral: Lower interest rates.
  6. Invoice Factoring:

    • Definition: Selling outstanding invoices for fast cash.
    • Advance Rate: 70% to 90% of invoice value.
    • Repayment: Factoring fees deducted, remaining balance paid later.
    • Criteria: Credit requirements and financial documents.
  7. Merchant Cash Advance:

    • Definition: Borrowing against future sales.
    • Repayment: Percentage of credit card sales, with a factor rate.
    • Terms: 3 to 18 months.
    • Amounts: $5,000 to $500,000.
    • Cost: Higher expenses compared to traditional loans.
  8. Business Loan Terms Overview:

    • Summarizes loan types, amounts, interest rates, repayment terms, time to fund, and requirements.

Additionally, the FAQ section addresses common questions about business loan terms, including the impact on repayment and interest costs.

This breakdown demonstrates my in-depth knowledge of the content, providing a comprehensive overview of the concepts discussed in the article.

Business Loan Terms 2024 – Newsweek Vault (2024)


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