Not all business financing is the same. The right loan for a bakery buying a new oven is completely different from the right loan for a tech startup that needs to cover six months of payroll. Choosing the wrong product can mean paying significantly more interest, getting rejected outright, or waiting weeks for money you need today.
This guide breaks down every major type of small business loan available in 2026, how each one works, who qualifies, and what it typically costs.
The 6 main types of small business loans
| Loan type | Best for | Funding speed | Typical APR |
| SBA 7(a) loan | General business expenses, expansion | 30–90 days | 9.75%–14.75% |
| SBA 504 loan | Real estate, heavy equipment | 30–90 days | ~6%–7% fixed |
| Term loan (bank) | Large one-time investments | 2–8 weeks | 6%–13% |
| Business line of credit | Ongoing working capital needs | 1–7 days | 10%–40%+ |
| Equipment financing | Buying machinery or vehicles | 1–5 days | 7%–30% |
| Invoice factoring | Businesses with unpaid invoices | 24–48 hours | 1%–5% factor fee |
| Microloan | Startups and very small businesses | 1–3 weeks | 8%–13% |
| Merchant cash advance | High-volume retail/restaurant | Same day | 40%–350% APR equiv. |
SBA loans — the gold standard for affordable financing
SBA loans are partially guaranteed by the U.S. Small Business Administration, which reduces the lender’s risk and allows them to offer significantly lower rates than most alternatives. There are two main programs:
SBA 7(a) loan
The most common SBA product. Loan amounts go up to $5 million and can be used for almost any legitimate business purpose: working capital, equipment, real estate, refinancing existing debt. As of early 2026, variable rates on 7(a) loans are quoted as Prime + a margin, putting most borrowers between 9.75% and 14.75% APR depending on loan size and term.
- Credit score: typically 680+
- Time in business: 2+ years preferred
- Annual revenue: varies by lender
- Personal guarantee required for owners with 20%+ stake
SBA 504 loan
Designed specifically for fixed assets: commercial real estate and heavy equipment. The structure involves a conventional lender (typically 50% of the loan), a Certified Development Company (40%), and the borrower’s down payment (10%). Rates on the CDC portion are fixed and typically well below market rates — around 6%–7% in 2026.
- Best for: purchasing a building, land, or major machinery
- Minimum down payment: 10%
- Loan amounts: up to $5.5 million
Term loans — straightforward financing from banks and online lenders
A term loan gives you a lump sum that you repay over a fixed period with regular payments. It’s the most familiar loan structure and works well for one-time, well-defined expenses like a renovation, a vehicle fleet, or a marketing campaign.
Traditional bank term loans offer the lowest rates (starting around 6%–7% APR) but require strong credit, at least two years in business, and detailed financial documentation. Online lenders approve faster and have looser criteria, but rates can reach 30%–40% APR or more for riskier borrowers.
- Loan amounts: $10,000–$500,000+ depending on lender
- Repayment terms: 1–10 years
- Funding time: 2–8 weeks (bank), 1–3 days (online)
Business line of credit — flexible access to capital
A line of credit works like a business credit card: you’re approved for a maximum limit, draw funds as needed, and only pay interest on what you actually use. When you repay, the credit becomes available again.
This is the most versatile financing product for ongoing working capital needs — covering payroll during a slow month, managing cash flow gaps, or jumping on a time-sensitive inventory deal. Bluevine and OnDeck are among the most accessible online options in 2026, with funding available within 24 hours for qualified borrowers.
- Credit limits: $10,000–$250,000
- Min. credit score: 625 (online lenders), 680+ (banks)
- Rates: 10%–40%+ depending on lender and credit profile
Equipment financing — use the asset as collateral
Equipment loans are secured by the equipment you’re purchasing, which makes them easier to qualify for than unsecured products. If you default, the lender repossesses the equipment. Because the collateral reduces the lender’s risk, rates are generally competitive — typically 7%–30% APR.
Coverage usually reaches 80%–100% of the equipment’s value. Loan terms match the equipment’s expected useful life. Lenders that specialize in equipment financing can often fund within 1–5 business days.
Invoice factoring — unlock cash tied up in unpaid invoices
If your business issues invoices with net-30 or net-60 payment terms, you may have significant cash tied up waiting for customers to pay. Invoice factoring lets you sell those unpaid invoices to a factoring company at a small discount (typically 1%–5% of the invoice value) in exchange for immediate cash.
This isn’t technically a loan — there’s no interest, no debt on your balance sheet, and approval is based on your customers’ creditworthiness rather than your own. It’s particularly common in B2B industries: staffing, manufacturing, trucking, and construction.
Microloans — for startups and very small businesses
Microloans are small loans — typically under $50,000 — designed for businesses that are too new or too small to qualify for conventional financing. The SBA microloan program offers up to $50,000 through nonprofit intermediaries, at rates between 8% and 13% APR.
Microloans often come with business mentoring and technical assistance, which can be as valuable as the capital itself for early-stage businesses.
Merchant cash advance — fast money at a very high cost
A merchant cash advance (MCA) provides a lump sum in exchange for a percentage of future credit card or debit card sales. The advance is repaid automatically as sales come in, which means payments flex with revenue — an advantage during slow periods.
The major drawback is cost. MCAs don’t use traditional APR, but when converted, effective annual rates can range from 40% to 350% or more. They should be considered only as a last resort when no other financing is available and the business genuinely needs immediate capital to survive or capture a specific opportunity.
How to decide which loan type is right for your business
The right product depends on your credit profile, how long you’ve been in business, how much you need, and how fast you need it. For a broader community perspective on what’s working for other business owners, the discussion on small business loans 2026 is worth reading before you apply.
- Need the lowest possible rate and can wait? → SBA 7(a) loan
- Buying real estate or heavy equipment? → SBA 504 loan
- One-time investment with good credit? → Bank term loan
- Ongoing cash flow needs? → Business line of credit
- Buying machinery? → Equipment financing
- Cash tied up in invoices? → Invoice factoring
- New business, small amount? → Microloan
- Need cash today, last resort? → Merchant cash advance
FAQs
What credit score do I need for a small business loan?
It depends on the product. SBA and bank loans typically require 680+. Many online lenders approve scores of 550–625. Equipment financing and invoice factoring have the most flexible credit requirements because the loan is secured by an asset or receivables.
How long does it take to get approved for a small business loan?
Online lenders can fund within 24–48 hours. SBA Express loans are approved within 36 hours. Traditional bank loans take 2–8 weeks. Standard SBA loans typically take 30–90 days from application to funding.
Can I get a small business loan with no collateral?
Yes. Business lines of credit and MCAs are often unsecured. SBA loans technically don’t require specific collateral if none is available, though lenders will take whatever business and personal assets exist as collateral when they can.