Small business loans and alternatives: compare your options
Match the repayment period to the expense. A machine that will work for years is a different financing decision from inventory you expect to sell next month.
Compare a set amount and a defined repayment schedule.
Compare draw rules, available credit, and ongoing fees.
Compare the useful life, lien, down payment, and payoff.
Compare the advance, fee clock, recourse, and collections.
These are starting points, not eligibility decisions. Invoice factoring is a sale of unpaid invoices, not a loan. It is included here as an alternative to borrowing.
| Option | What it can suit | What to check |
|---|---|---|
| Term loan | A defined project, expansion, or working-capital need | Monthly, weekly, or daily repayment; fixed or variable pricing; early payoff |
| Business line of credit | Repeated short-term cash-flow gaps | Draw fees, repayment after each draw, renewals, and available limit |
| SBA-backed loan | Eligible businesses seeking lender financing supported by an SBA guarantee | Program eligibility, lender underwriting, documentation, collateral, and guarantees |
| Equipment financing | Vehicles, machinery, and other business equipment | Ownership, equipment lien, down payment, and term versus useful life |
| Invoice factoring Receivables sale, not a loan | Eligible unpaid business-customer invoices | Customer credit, advance rate, discount fees, recourse, and collection arrangements |
| Revenue-based advance | Businesses considering repayment tied to future receipts | Whether the agreement is a receivables purchase, collection frequency, reconciliation terms, and total purchased amount |
Bank loans, private lenders, and online providers
A bank and a nonbank lender can offer similar-looking term loans with very different costs and requirements. “Private lender” describes the provider, not a standard interest rate or approval rule. Ask who is funding the agreement, who services it, and whether anyone arranging the financing charges a fee.
For SBA 7(a) loans, a participating lender makes the loan. The SBA guarantee does not replace lender underwriting or eliminate your repayment obligation. See the SBA’s 7(a) overview.
A long-lived asset and a short-term inventory purchase can call for different repayment schedules. Illustrative image.
Small business loan rates: compare the whole cost
The interest rate is one part of the price. Upfront fees reduce the cash available to your business, while payment frequency and term affect how quickly you return it. Compare written offers for the same amount, term, and payment schedule whenever possible.
Nominal interest rate is the stated rate charged for using principal, before fees. Annual percentage rate (APR) expresses an annualized borrowing cost that includes interest and applicable finance charges under the disclosure method. It is useful for comparing offers, but does not tell you whether the payment is affordable or cover every possible charge. Ask which fees are included.
At 12% nominal interest over 60 months, the scheduled payment is about $2,224.44. The fee raises the annualized cost above 12%, even though the monthly loan payment is unchanged.
Fixed versus variable interest rates
A fixed rate stays the same for the period stated in the agreement. On a fully amortizing, level-payment loan, that normally makes the scheduled principal-and-interest payment predictable.
A variable rate can change with a stated index plus a margin. Read the reset frequency, floor, cap, and rules for payment changes. In the calculator, try a higher rate at your first reset date and check the new payment against a slower revenue month. The scenario is not a forecast.
Questions that make two offers easier to compare
- How much cash reaches my account after fees?
- What is each payment, how often is it due, and when does repayment end?
- What is the total scheduled repayment, including any balloon?
- Which fees are included in the APR or other annualized disclosure?
- Will early payoff reduce the cost, and is there a prepayment charge?
- What assets or personal guarantees support the agreement?
How interest and financing charges are calculated
Two offers can use the same percentage and produce different dollar costs. Always identify the balance being charged, the time period, and whether unpaid charges can be added to principal.
12% annual interest
$500 first-month interest
Monthly reducing-balance model. Later interest falls as principal is repaid.
1.20 factor rate
$60,000 total repayment
$10,000 financing charge before other fees. This does not mean 20% APR.
2% monthly flat fee
$1,000 per month
Example assumes the fee uses the original amount. Contract terms may use another base.
Simple interest on a declining balance
Interest is calculated on the unpaid principal for each accrual period. Under this calculator’s monthly model, $50,000 at 12% annual interest produces $500 of interest in the first month. If the principal falls to $40,000, a full month at that rate produces $400.
Many amortizing loans use a reducing-balance approach, but a product name alone does not tell you the accrual method. A daily-interest contract may use principal × annual rate × days ÷ 365, or another specified day-count basis. Check the agreement. The CFPB’s explanation of simple versus precomputed interest illustrates the distinction using auto loans.
Compound interest and capitalized interest
Compounding occurs when unpaid interest is added to the balance and later interest is charged on that larger amount. For example, $10,000 with 1% monthly interest and no payments becomes $10,100 after one month, then $10,201 after two, if the contract capitalizes interest monthly. These are mechanics, not terms of an Excel offer.
A loan payment formula containing an exponent does not, by itself, mean you are paying interest on unpaid interest. If each payment covers all accrued interest, principal can decline normally. Read how missed payments, deferments, and capitalization are treated.
Flat fees and weekly or monthly charges
A provider may charge a fixed dollar fee or a percentage each week or month. Ask whether the percentage applies to the original funding amount, the outstanding balance, or each draw. A monthly percentage cannot be treated as a comparable APR just by multiplying by 12 when principal is also being repaid or other fees apply.
Factor rates
A factor rate multiplies the original funding amount to set a total repayment or purchased receivables amount. At 1.20, $50,000 becomes $60,000 before additional fees. The $10,000 difference is 20% of the original amount, but it is not an annual percentage rate. The repayment time and pattern matter. A fixed factor-rate charge is set upfront rather than growing through interest-on-interest compounding. Other contractual fees can still apply, and early payoff may not reduce the charge.
Factor pricing appears in some short-term financing and merchant cash advances. An MCA is generally structured as a purchase of future receivables, not a conventional loan. Read the agreement’s legal structure, reconciliation process, and payoff terms rather than relying on its marketing label.
Invoice factoring is not a loan
Invoice factoring is the sale of eligible unpaid customer invoices to a factoring company. A loan creates a debt that you repay; factoring gives you earlier access to money your customers already owe. It is included here for comparison as an alternative to a loan.
Invoice factoring fees are different from a fixed factor-rate charge. They may be a set fee for an agreed period or increase with the time an invoice remains unpaid. A time-based fee is not the same as interest compounding on unpaid interest, but it means the final cost is not always one fixed amount. Check the fee basis, billing periods, reserve, recourse, and collection terms. Use the invoice factoring guide and calculator for that separate transaction; a term-loan calculator is not an appropriate substitute.
Amortization: when do you repay the principal?
Amortization describes how a balance is paid down over time. The loan term is when the debt matures. Those periods can differ, which is why a low regular payment can leave a large final bill.
For a step-by-step explanation, see our guide to calculating an amortization schedule.
Fully amortizing
Regular payments repay all principal by the end.
Interest-only + balloon
Principal stays outstanding until the final payment.
Partially amortizing
Some principal is repaid regularly; the rest is a balloon.
Level principal-and-interest payments
With a fixed rate and full amortization, the scheduled payment stays level. Early payments contain more interest; later payments contain more principal. A longer term can lower the payment while increasing total interest.
Equal-principal payments
The same amount of principal is repaid each period, with interest added on the remaining balance. At a fixed rate, total payments decline. The larger early payments can be harder on cash flow.
Interest-only periods
Interest-only payments do not reduce principal. If principal repayment starts later, payments can rise sharply because less time remains. If the entire term is interest-only, plan for the full principal payoff at maturity. Refinancing is not guaranteed.
Partial amortization and balloons
A payment can be calculated over, for example, ten years even though the loan matures in five. The remaining balance is then due as a balloon. Compare the final payment as carefully as the regular payment.
Negative amortization and seasonal schedules
If a payment is less than the interest due and unpaid interest is capitalized, the balance grows. That is negative amortization. The calculator does not model it.
A seasonal business may ask a provider about a customized schedule. Availability varies, and lower payments in slow months can mean higher payments later. Use a month-by-month cash-flow forecast; an annual revenue average can hide the tightest months. The calculator models monthly schedules, not a bespoke seasonal agreement.
Small business loan requirements
There is no single credit score, revenue level, or time-in-business rule for every small business loan. Providers evaluate the product, repayment capacity, business history, credit profile, and any available security together.
| What providers review | What to prepare |
|---|---|
| Revenue and cash flow | Recent business bank statements, financial statements, existing debt payments, and a realistic forecast |
| Business history and ownership | Formation records, ownership information, licenses where applicable, and time in operation |
| Credit | Personal and business credit information where required, plus explanations for material issues |
| Use of funds | A specific budget, equipment quote, purchase agreement, or working-capital plan |
| Collateral and guarantees | Asset details, existing liens, and a clear understanding of each owner’s obligations |
Can the business carry another payment?
Debt service coverage ratio (DSCR) compares cash available for debt service with required principal and interest payments over the same period. A ratio above 1.0 means the numerator exceeds the debt payments in that calculation; it does not guarantee approval. Providers define qualifying cash flow and required coverage differently.
If qualifying cash flow falls to $10,000, coverage falls to 1.00× and that cushion disappears. Test a slower month before deciding what feels affordable.
Use a consistent cash-flow definition rather than substituting gross sales. Our DSCR guide explains the ratio in more detail. You can also review the four Cs of business lending to understand common underwriting considerations.
What if you have bad credit or a new business?
Some providers consider weaker credit, but higher prices, smaller amounts, or additional requirements may apply. No-credit-check and guaranteed-approval claims deserve scrutiny. Ask whether a credit inquiry is soft or hard before authorizing it.
A startup may not have the operating history required for many cash-flow loans. Consider whether an SBA microloan intermediary, community lender, or equipment-specific provider fits your situation. The SBA microloan program offers loans of up to $50,000 through intermediaries; individual lenders set their own credit requirements. Read the SBA microloan program details.
Does “unsecured” mean no personal risk?
No. An unsecured product may still involve a personal guarantee or contractual claims against business assets, depending on how the provider uses the term. Ask specifically about collateral, a blanket UCC lien, and personal guarantees. Read our unsecured business loan guide before assuming those obligations are absent.
How to get a small business loan
Set the amount and purpose
Build a budget for the actual expense. Include a realistic timing cushion without borrowing more than the business can repay.
Check your cash flow and documents
Gather the records the provider requests. Reconcile statements and list existing debt so the new payment is evaluated alongside current obligations.
Compare suitable financing options
Match the use of funds to the product and term. Ask Excel Capital about available options and the provider’s requirements before relying on a quoted rate or funding timeline.
Review the written offer
Compare net proceeds, total cost, repayment frequency, variable-rate provisions, collateral, guarantees, and early-payoff terms. Resolve unclear charges before accepting.
Plan for repayment before funding
Confirm the first due date and payment method. Keep enough operating cash available for payroll, taxes, and the next slow period.
Compare written terms side by side, including the amount received and the final payment. Illustrative image.
Have a funding need in mind?
Tell us what you’re financing and when you need it. We can discuss available options and the next steps for your business.
Explore funding optionsApproval, pricing, timing, and product availability depend on underwriting and the terms offered.
Small business loan questions
How much would a $100,000 business loan cost per month?
At a fixed 12% annual interest rate over 60 monthly payments, a fully amortizing $100,000 loan is about $2,224.44 per month before fees. Different rates, terms, payment frequencies, and balloon provisions change the result. This is an example, not an available offer.
What credit score do I need for a small business loan?
There is no universal minimum. Requirements depend on the provider and product, and credit is considered alongside revenue, cash flow, business history, and other factors. Ask about the specific program rather than relying on a single score quoted for all business loans.
Can an LLC get a small business loan?
Yes, an LLC can apply, but forming an LLC does not establish eligibility or remove a personal guarantee. Providers review the business, its owners, and the financing request under their own criteria.
Can I get a small business loan for a startup?
Some programs and providers consider startups. Expect questions about your experience, business plan, credit, investment, and projected repayment capacity. A program that requires established revenue may not fit a business that has not opened yet.
Are there small business loans for women-owned businesses?
Women-owned businesses can apply for general business financing and explore targeted programs offered by particular organizations. Eligibility and availability vary. Distinguish a loan, which must be repaid, from a grant, and verify any program directly with its provider.
Is a factor rate of 1.20 the same as 20% APR?
No. A 1.20 factor means the scheduled repayment or purchased amount is 1.20 times the original funding amount, before any additional fees. APR or a comparable annualized cost also depends on time, payment timing, and applicable charges.
Are interest-only payments cheaper?
They can make the initial payment smaller, but they do not reduce principal. The balance must be repaid later, and total interest may be higher than on an otherwise comparable amortizing loan. Review both the later payment and any balloon.
Can I pay a business loan off early?
It depends on the agreement. Reducing principal early may save interest on a reducing-balance loan, but prepayment charges, fixed fees, or precomputed costs can limit the savings. Request a written payoff calculation before deciding.
How quickly can a small business loan fund?
Timing depends on the product, provider, documentation, verification, and underwriting. A preliminary indication is not final approval. Confirm the steps still outstanding and the expected funding date before making commitments.
Sources and calculation notes
This guide explains financing structures and uses illustrative math. Product availability and contract terms must be confirmed with the provider. Program information was checked October 13, 2026.
- U.S. Small Business Administration: 7(a) loans
- U.S. Small Business Administration: Microloans
- Consumer Financial Protection Bureau: Simple and precomputed interest (auto-loan example used to explain the general calculation distinction)
- Corporate Finance Institute: Types of interest
Calculator assumptions and formulas are shown above so you can compare the estimate with a provider’s payment schedule. Images are illustrative and do not depict customer testimonials.